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International macroeconomic fluctuations and the current account

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  • Hoffmann, Mathias

Abstract

Intertemporal models of the current account generally assume that global shocks do not affect the current account. We use this assumption to identify global and country-specific shocks in a bivariate VAR. We test the quality of the identification using evidence from G7-data. In accordance with the theory, we observe a link between the global shock and a measure of the world real interest rate. We also find that long-term output growth is driven by global factors in most countries, that country-specific shocks are less persistent in smaller economies and generally less volatile than global shocks

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9915.

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Date of creation: 01 Jan 1999
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Handle: RePEc:stn:sotoec:9915

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  1. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  2. Marin, Dalia, 1990. "Is the Export-Led Growth Hypothesis Valid for Industrialized Countries?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 362, C.E.P.R. Discussion Papers.
  3. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  4. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(5), pages 1062-88, October.
  5. Cogley, T., 1989. "International Evidence On The Size Of The Random Walk In Output," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 89-02, Department of Economics at the University of Washington.
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  7. Reuven Glick & Kenneth Rogoff, 1992. "Global Versus Country-Specific Productivity Shocks and the Current Account," NBER Working Papers 4140, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
  9. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(1), pages 27-35, January.
  10. James M. Nason & John H. Rogers, 1999. "Investment and the current account in the short run and the long run," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 647, Board of Governors of the Federal Reserve System (U.S.).
  11. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  12. 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.
  13. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  14. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  15. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
  16. 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.
  17. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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Cited by:
  1. Mathias Hoffmann & Wei Liao, 2011. "The Cross-Section of Country News, Decoupling Expectations, and Global Business Cycles," Working Papers 342011, Hong Kong Institute for Monetary Research.
  2. John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Papers 2005-W22, Economics Group, Nuffield College, University of Oxford.
  3. Mike Artis & Hans-Martin Krolzig & Juan Toro, 2004. "The European business cycle," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 1-44, January.
  4. Elif C. Arbatli, 2008. "Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account," Working Papers 08-48, Bank of Canada.
  5. Boileau, Martin & Normandin, Michel & Powo Fosso, Bruno, 2010. "Global versus country-specific shocks and international business cycles," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 1-16, March.
  6. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2002. "Separation, Weak Exogeneity, And P-T Decomposition In Cointegrated Var Systems With Common Features," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(3), pages 273-307.
  7. Hoffmann, Mathias & MacDonald, Ronald, 2009. "Real exchange rates and real interest rate differentials: A present value interpretation," European Economic Review, Elsevier, vol. 53(8), pages 952-970, November.
  8. José García-Solanes & Jesús Rodríguez López & José Luis Torres Chacón, 2007. "Demand Shocks and Trade Balance Dynamics," Working Papers 07.10, Universidad Pablo de Olavide, Department of Economics.
  9. Sascha O. Becker & Mathias Hoffmann, 2003. "Intra-and International Risk-Sharing in the Short Run and the Long Run," CESifo Working Paper Series 1111, CESifo Group Munich.
  10. Mathias Hoffmann & Ulrich Woitek, 2011. "Emerging from the war: Gold Standard mentality, current accounts and the international business cycle 1885-1939," ECON - Working Papers, Department of Economics - University of Zurich 057, Department of Economics - University of Zurich.
  11. Elif C. Arbatli, 2009. "Futures Markets, Oil Prices, and the Intertemporal Approach to the Current Account," 2009 Meeting Papers, Society for Economic Dynamics 406, Society for Economic Dynamics.
  12. Jens R. Clausen & Magda E. Kandil, 2005. "On Cyclicality in the Current and Financial Accounts," IMF Working Papers 05/56, International Monetary Fund.
  13. Giancarlo Corsetti & Panagiotis T. Konstantinou, 2012. "What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1062-92, April.
  14. Murat, Atilim & Tokat, Ekin, 2009. "Forecasting oil price movements with crack spread futures," Energy Economics, Elsevier, Elsevier, vol. 31(1), pages 85-90, January.

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