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The Role of Stock Markets in Current Account Dynamics

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Author Info

  • Benoît Mercereau

Abstract

This paper tests a model of the role of stock markets in current account dynamics, developed in a companion paper. With U.S. data, the model performs better than the same model without stock markets. An insight given by the model is that the current account might help predict future stock market performance. This property receives some preliminary empirical confirmation. The results also suggest that stock markets matter to the current account dynamics.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/108.

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Length: 35
Date of creation: 01 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/108

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Related research

Keywords: Stock markets; Economic models; current account; current account deficit; current account dynamics; current account deficits; current account surplus; current account adjustment; current account surpluses; domestic agents; current accounts; balance of payments; reserve bank; current account response; current account imbalances; debtor countries; domestic agent; global current account; data preparation;

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References

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  1. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 147-59.
  2. Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
  3. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries," IMF Working Papers 97/51, International Monetary Fund.
  4. Tim Callen & Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 99/181, International Monetary Fund.
  5. C. John McDermott & Paul Cashin, 1996. "Are Australia's Current Account Deficits Excessive?," IMF Working Papers 96/85, International Monetary Fund.
  6. Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, vol. 105(428), pages 107-28, January.
  7. Maurice Obstfeld and Kenneth Rogoff., 1994. "The Intertemporal Approach to the Current Account," Center for International and Development Economics Research (CIDER) Working Papers C94-044, University of California at Berkeley.
  8. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
  9. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
  10. David A. Marshall & Nayan G. Parekh, 1999. "Can Costs of Consumption Adjustment Explain Asset Pricing Puzzles?," Journal of Finance, American Finance Association, vol. 54(2), pages 623-654, 04.
  11. Kraay, A. & Ventura, J., 1997. "Current Acounts in Debtor and Creditor Countries," Working papers 97-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers 2223, C.E.P.R. Discussion Papers.
  13. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity Premium Puzzle," Harvard Institute of Economic Research Working Papers 1947, Harvard - Institute of Economic Research.
  14. Steven J. Davis & Jeremy Nalewaik & Paul Willen, 2000. "On the Gains to International Trade in Risky Financial Assets," NBER Working Papers 7796, National Bureau of Economic Research, Inc.
  15. Jaume Ventura, 2001. "A Portfolio View of the U.S. Current Account Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 241-258.
  16. John Y. Campbell, 1988. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," NBER Working Papers 1805, National Bureau of Economic Research, Inc.
  17. Olumuyiwa Adedeji, 2001. "The Size and Sustainability of the Nigerian Current Account Deficits," IMF Working Papers 01/87, International Monetary Fund.
  18. Lynch, Anthony W, 1996. " Decision Frequency and Synchronization across Agents: Implications for Aggregate Consumption and Equity Return," Journal of Finance, American Finance Association, vol. 51(4), pages 1479-97, September.
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Citations

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Cited by:
  1. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
  2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, 02.
  3. Cedric Tille, 2005. "Financial Integration and the Wealth Effect of Exchange Rate Fluctuations," 2005 Meeting Papers 282, Society for Economic Dynamics.
  4. Kitamura, Yoshihiro, 2009. "The current account and stock returns," Research in International Business and Finance, Elsevier, vol. 23(3), pages 302-321, September.
  5. Torsten Schmidt & Torge Middendorf, 2004. "Characterizing Movements of the U.S. Current Account Deficit," RWI Discussion Papers 0024, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  6. Benoît Mercereau, 2003. "Stock Markets and Real Exchange Rate," IMF Working Papers 03/109, International Monetary Fund.
  7. Chen Kuo, 2013. "Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 1923-1941, June.

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