What Drives China's Current Account?
AbstractThe paper offers an empirical taxonomy of the factors driving China's current account. A simple present-value model with non-tradeable goods explains more than 70 percent of current account variability over the period 1982-2007, including the persistent surpluses since 2001. Expected increases in the prices of non-tradeables-housing and medical care-are the single most important channel of external adjustment, followed by consumption smoothing. Much of this pattern is driven by a permanent global shock that persistently depresses the world real interest rate and increases the current account, suggesting that shocks to precautionary saving are key in understanding China's surplus. These findings are robust to controlling for revaluation expectations in the fixed exchange rate regime and for measurement error in the current account balance.
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Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 112010.
Length: 31 pages
Date of creation: May 2010
Date of revision:
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China; Current Account; Present-Value Models; External Adjustment; Global Imbalances; Savings Glut; Precautionary Saving;
Other versions of this item:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F30 - International Economics - - International Finance - - - General
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-CBA-2010-10-09 (Central Banking)
- NEP-OPM-2010-10-09 (Open Economy Macroeconomic)
- NEP-TRA-2010-10-09 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hoffman, Mathias, 2001.
"The Relative Dynamics of Investment and the Current Account in the G7-Economies,"
Royal Economic Society, vol. 111(471), pages C148-63, May.
- Hoffmann, Mathias, 2000. "The relative dynamics of investment and the current account in the G-7 economies," Discussion Paper Series In Economics And Econometrics 0005, Economics Division, School of Social Sciences, University of Southampton.
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