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Common Stochastic Trends in the Current Account

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  • Kumah, F.Y.

    (Tilburg University, Center for Economic Research)

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    Abstract

    Solow residuals are used as proxies for productivity shocks in many empirical studies.Considering the shortcomings of this approach this paper proposes the common trends approach as an alternative.The common trends econometric technique is utilized here in an attempt to identify and analyze the long run effects of country-specific and global productivity shocks on fluctuations in investment and the current account.The theoretical framework utilized provides long run restrictions relevant for identifying global and country-specific productivity shocks.Our estimations yield the following stylized facts.Generally, consistent with theoretical predictions, the long run effects of positive idiosyncratic (country-specific) productivity shocks on the current account are significantly negative.Further, permanent global shocks are impotent (by theoretical restriction) in explaining fluctuations in the current account though very significant in explaining investment fluctuations.

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-84.

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    Date of creation: 1996
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    Handle: RePEc:dgr:kubcen:199684

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    Web page: http://center.uvt.nl

    Related research

    Keywords: current account; stochastic processes; capital movements;

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    1. Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993. "International Business Cycles," American Economic Review, American Economic Association, vol. 83(3), pages 335-59, June.
    2. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
    3. Shiller, Robert & Campbell, John, 1988. "Interpreting Cointegrated Models," Scholarly Articles 3221492, Harvard University Department of Economics.
    4. Martin Eichenbaum, 1990. "Real business cycle theory: wisdom or whimsy?," Working Paper Series, Macroeconomic Issues 90-13, Federal Reserve Bank of Chicago.
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    15. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, vol. 83(3), pages 416-36, June.
    16. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
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    Cited by:
    1. Francis Y. Kumah & John Matovu, 2005. "Commodity Price Shocks and the Oddson Fiscal Performance," IMF Working Papers 05/171, International Monetary Fund.

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