Advanced Search
MyIDEAS: Login to save this paper or follow this series

Current Account Adjustment: Some New Theory and Evidence

Contents:

Author Info

  • Jiandong Ju
  • Shang-Jin Wei

Abstract

This paper aims to provide a theory of current account adjustment that generalizes the textbook version of the intertemporal approach to current account and places domestic labor market institutions at the center stage. In general, in response to a shock, an economy adjusts through a combination of a change in the composition of goods trade (i.e., intra-temporal trade channel) and a change in the current account (i.e., intertemporal trade channel). The more rigid the labor market, the slower the speed of adjustment of the current account towards its long-run equilibrium. Three pieces of evidence are provided that are consistent with the theory.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w13388.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13388.

as in new window
Length:
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:nbr:nberwo:13388

Note: IFM ITI
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
  2. de Cordoba, Gonzalo Fernandez & Kehoe, Timothy J., 2000. "Capital flows and real exchange rate fluctuations following Spain's entry into the European Community," Journal of International Economics, Elsevier, Elsevier, vol. 51(1), pages 49-78, June.
  3. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, Elsevier, vol. 14(3-4), pages 341-356, May.
  4. Nishimura, Kazuo & Shimomura, Koji, 2002. "Trade and Indeterminacy in a Dynamic General Equilibrium Model," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(1), pages 244-260, July.
  5. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  6. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 84(2), pages 147-59.
  7. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 25(4), pages 923-43, November.
  8. Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(428), pages 107-28, January.
  9. Gian Maria Milesi-Ferrett & Assaf Razin, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Working Papers 6620, National Bureau of Economic Research, Inc.
  10. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
  11. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report, Federal Reserve Bank of Minneapolis 377, Federal Reserve Bank of Minneapolis.
  12. Ghosh, Atish R. & Ostry, Jonathan D., 1997. "Macroeconomic uncertainty, precautionary saving, and the current account," Journal of Monetary Economics, Elsevier, Elsevier, vol. 40(1), pages 121-139, September.
  13. John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Papers, Economics Group, Nuffield College, University of Oxford 2005-W22, Economics Group, Nuffield College, University of Oxford.
  14. Franses,Philip Hans & Dijk,Dick van, 2000. "Non-Linear Time Series Models in Empirical Finance," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521779654.
  15. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct.
  16. Alejandro Cuñat & Marc J. Melitz, 2007. "Volatility, Labor Market Flexibility, and the Pattern of Comparative Advantage," CEP Discussion Papers, Centre for Economic Performance, LSE dp0799, Centre for Economic Performance, LSE.
  17. Kraay, A. & Ventura, J., 1997. "Current Acounts in Debtor and Creditor Countries," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. James R. Markusen & Lars E.O. Svensson, 1983. "Trade in Goods and Factors with International Differences in Technology," NBER Working Papers 1101, National Bureau of Economic Research, Inc.
  19. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 78(3), pages 456-88, May-June.
  20. Marianne Baxter, 1991. "Fiscal policy, specialization, and trade in the two-sector model: the return of Ricardo?," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 56, Federal Reserve Bank of Minneapolis.
  21. Hussein, Khaled A. & de Mello, Luiz Jr., 1999. "International capital mobility in developing countries: theory and evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(3), pages 367-381.
  22. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(1), pages 97-125, February.
  23. Eric W. Bond & Kathleen Trask & Ping Wang, 1996. "Factor Accumulation and Trade: Dynamic Comparative Advantage with Endogenous Physical and Human Capital," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0031, Vanderbilt University Department of Economics, revised Aug 2000.
  24. O'Connell, P. G. J., 1998. "Market frictions and real exchange rates1," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(1), pages 71-95, February.
  25. Deardorff, Alan V & Hanson, James A, 1978. "Accumulation and a Long-Run Heckscher-Ohlin Theorem," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 16(2), pages 288-92, April.
  26. David Johnson, 1986. "Consumption, Permanent Income, and Financial Wealth in Canada: Empirical Evidence on the Intertemporal Approach to the Current Account," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 19(2), pages 189-206, May.
  27. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(351), pages 488-510, September.
  28. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(2), pages 646-677, May.
  29. Sarno, Lucio & Taylor, Mark P. & Chowdhury, Ibrahim, 2004. "Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(1), pages 1-25, February.
  30. Wong, Kar-yiu, 1986. "Are international trade and factor mobility substitutes?," Journal of International Economics, Elsevier, Elsevier, vol. 21(1-2), pages 25-43, August.
  31. Richard H. Clarida & Manuela Goretti & Mark P. Taylor, 2006. "Are There Thresholds of Current Account Adjustment in the G7?," NBER Working Papers 12193, National Bureau of Economic Research, Inc.
  32. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1173-1193, September.
  33. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, National Bureau of Economic Research, Inc, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
  34. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1029-46, December.
  35. Otto, Glenn, 1992. "Testing a present-value model of the current account: Evidence from US and Canadian time series," Journal of International Money and Finance, Elsevier, Elsevier, vol. 11(5), pages 414-430, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13388. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.