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Endogenous current account balances in a world CGE model with international financial assets

Author

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  • Lemelin, André
  • Robichaud, Véronique
  • Decaluwé, Bernard

Abstract

This paper presents an applied computable general equilibrium world model with financial assets and endogenous current account, and capital and financial account balances. The capital and financial account equilibrium conditions, rather than exogenous rules, constrain the current account balance. International capital flows which balance the current account are constrained by supply-and-demand equilibrium conditions on the market for international debt securities, under portfolio managers' optimizing behavior. The asset–liability structure of the financial portfolio is endogenous, and it is possible for a country-agent to have negative net financial assets. In simulations, the interaction of portfolio choices with trade supply and demand behavior leads to endogenous sign reversals in some current account balances, and it results in a different allocation of investment among regions, compared to a model with exogenously determined current account balances. In the reference scenario, this allocation generates growth that is about the same globally, but differently distributed between regions.

Suggested Citation

  • Lemelin, André & Robichaud, Véronique & Decaluwé, Bernard, 2013. "Endogenous current account balances in a world CGE model with international financial assets," Economic Modelling, Elsevier, vol. 32(C), pages 146-160.
    • Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:146-160
    DOI: 10.1016/j.econmod.2013.01.046
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    2. Wu, Libo & Yin, Xiangshuo & Li, Changhe & Qian, Haoqi & Chen, Taoran & Tang, Weiqi, 2013. "Trade and Investment Among BRICS: Analysis of Impact of Tariff Reduction and Trade Facilitation Based on Dynamic Global CGE Model," Conference papers 332394, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Haqiqi , Iman & Bahalou Horeh , Marziyeh, 2013. "Macroeconomic Impacts of Export Barriers in a Dynamic CGE Model," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(3), pages 117-150, July.
    4. De Lucia, Caterina & Bartlett, Mark, 2014. "Implementing a biofuel economy in the EU: Lessons from the SUSTOIL project and future perspectives for next generation biofuels," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 22-30.
    5. Essossinam Ali & Nimonka Bayale, 2024. "Impact of Public Agricultural Investment on Crops Production, Households’ Welfare, and Employment Generation Opportunities in Togo, West Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(1), pages 161-193, February.

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    More about this item

    Keywords

    World CGE model; International investment position; Current account balances; Capital and financial account;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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