A Structural VAR Approach to the Intertemporal Model of the Current Account
Abstract
The intertemporal current account approach predicts that the current account of a small open economy is independent of global shocks, and that responses of the current account to country-specific shocks depend on the persistence of the shocks. The author shows that these predictions impose cross-equation restrictions (CERS) on a structural vector autoregression (SVAR). To test the CERs, the author develops identification schemes of the SVAR that exploit the orthogonality of the world real interest rate to country-specific shocks as well as the lack of a long-run response of net output to transitory shocks. Tests of the SVAR reveal two puzzling aspects of the Canadian and U.K. current account: (i) the response of the current account to a country-specific transitory shock is too large, and (ii) the fluctuations in the current account are dominated by country-specific transitory shocks that explain almost none of the fluctuations in net output growth.Download Info
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Paper provided by Bank of Canada in its series Working Papers with number 03-42.Length: 42 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-42
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Related research
Keywords:Other versions of this item:
- Kano, Takashi, 2008. "A structural VAR approach to the intertemporal model of the current account," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 757-779, September.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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