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A threshold model of the US current account

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  • Duncan, Roberto

Abstract

What drives the US current account imbalances? Is there solid evidence that the behavior of the current account is different during deficits and surpluses or that the size of the imbalance matters? Is there a threshold relationship between the US current account and its main drivers? We estimate a threshold model to answer these questions using the instrumental variable estimation proposed by Caner and Hansen (2004). Rather than concluding that the size or the sign of (previous) external imbalances matters, we find that time is the most important threshold variable. One regime exists before and another one exists after the third quarter of 1997, a period that coincides with the onset of the Asian financial crisis and the Taxpayer Relief Act of 1997. Statistically significant determinants in the second regime are the fiscal surplus, productivity, productivity volatility, oil prices, the real exchange rate, and the real interest rate. Productivity has become a more important driver since 1997.

Suggested Citation

  • Duncan, Roberto, 2015. "A threshold model of the US current account," Economic Modelling, Elsevier, vol. 48(C), pages 270-280.
  • Handle: RePEc:eee:ecmode:v:48:y:2015:i:c:p:270-280
    DOI: 10.1016/j.econmod.2014.10.032
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    Cited by:

    1. Casarin, Roberto & Costola, Michele, 2019. "Structural changes in large economic datasets: A nonparametric homogeneity test," Economics Letters, Elsevier, vol. 176(C), pages 55-59.
    2. repec:spr:empeco:v:56:y:2019:i:2:d:10.1007_s00181-017-1368-5 is not listed on IDEAS

    More about this item

    Keywords

    Global imbalances; Saving glut; Revived Bretton Woods system; Taxpayer Relief Act of 1997; Threshold model;

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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