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Thousands of models, one story: current account imbalances in the global economy

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  • Chudik, Alexander
  • Dieppe, Alistair
  • Ca' Zorzi, Michele

Abstract

The global financial crisis has led to a revival of the empirical literature on current account imbalances. This paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion. We explore three alternative econometric strategies: examining all models, selecting a few, and combining them all. Out of thousands (or indeed millions) of models a story emerges. Prior to the financial crisis, current account positions of major economies such as the US, UK, Japan and China were not aligned with fundamentals. JEL Classification: C11, C33, F32, F34, F41, O52

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1441.

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Date of creation: Jun 2012
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Handle: RePEc:ecb:ecbwps:20121441

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Keywords: current account; global imbalances; model combination; Model uncertainty; panel data;

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Citations

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Cited by:
  1. Milan Nedeljkovic & Branko Uroševic & Emir Zildžovic, 2012. "Jackknife Model Averaging of the Current Account Determinants," Working papers 23, National Bank of Serbia.
  2. Jamel Saadaoui, 2012. "Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates?," CEPN Working Papers halshs-00750551, HAL.
  3. Michele Ca' Zorzi & Alexander Chudik & Alistair Dieppe, 2012. "The perils of aggregating foreign variables in panel data models," Globalization and Monetary Policy Institute Working Paper 111, Federal Reserve Bank of Dallas.
  4. Bussière, Matthieu & Ca' Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2010. "Methodological advances in the assessment of equilibrium exchange rates," Working Paper Series 1151, European Central Bank.
  5. Blaise Gnimasoun & Valérie Mignon, 2013. "Current-account adjustments and exchange-rate misalignments," EconomiX Working Papers 2013-31, University of Paris West - Nanterre la Défense, EconomiX.

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