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Investment and the Current Account: A Triangular Model of the G-7 Key words: Investment; current account; triangular simultaneous equations model; random coefficients regression model

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  • Talan B. Iscan
  • U.L. Gouranga Rao

    ()
    (Department of Economics, Dalhousie University)

Abstract

The joint behavior of investment and the current account is derived as a triangular simultaneous equations model. To estimate this model for the G7 countries, we propose a full-information GLS estimator for panel data that extends Zellner-Theil three-stage least squares estimator and allows for parameter heterogeneity across individual countries. We find that the null of parameter homogeneity is rejected, that global productivity shocks common to the G7 significant impact on individual country investment movements, and that their influence on investment exceeds that of country-specific productivity shocks. The common productivity shocks are also found to have significant effect on the current account, but the response is asymmetric across countries.

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File URL: http://www.economics.dal.ca/RePEc/dal/wparch/rao.pdf
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Bibliographic Info

Paper provided by Dalhousie, Department of Economics in its series Department of Economics at Dalhousie University working papers archive with number rao.

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Length: 33 pages
Date of creation: 10 Apr 2000
Date of revision:
Handle: RePEc:dal:wparch:rao

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  1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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  3. repec:att:wimass:9220 is not listed on IDEAS
  4. Christian Zimmermann, 1996. "International Real Business Cycles among Heterogeneous Countries," Macroeconomics 9607002, EconWPA.
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  9. Nason, James M & Rogers, John H, 2002. "Investment and the Current Account in the Short Run and the Long Run," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 967-86, November.
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  16. Allan W. Gregory & Allen C. Head, 1996. "Common and Country-specific Fluctuations in Productivity, Investment, and the Current Account," Working Papers 931, Queen's University, Department of Economics.
  17. Cheng Hsiao, 1997. "Cointegration and Dynamic Simultaneous Equations Model," Econometrica, Econometric Society, vol. 65(3), pages 647-670, May.
  18. Alan C. Stockman & Linda L. Tesar, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
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