The current account-interest rate relation: A panel data study for OECD countries
The issue of the current account is important for policy makers, since it provides information about quantity of foreign resources that must be borrowed to fund domestic investment. This study examines the relationship between current account balance as a percentage of GDP and real interest rate over the period from 1980-2009 for a sample of 21 OECD countries that are high income economies using recent developed panel estimation techniques. The two-way panel estimation technique is used in order to investigate the relationship between the selected variables. The two-way Panel OLS estimation results show that there is a positive relationship between current account and real interest rate as expected. This finding illustrates the fundamental understanding of the role of real interest rate in determining the current account balance for high income economies, and it is useful for policy considerations. From policy perspective, we can say that the authorities can overcome current account imbalances by altering interest rates.
Volume (Year): 3 (2012)
Issue (Month): 2 ()
|Contact details of provider:|| |
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.:
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Martin Boileau & Michel Normandin, 2004.
"The Current Account and the Interest Differential in Canada,"
Cahiers de recherche
- Michel Normandin & Martin Boileau, 2004. "The Current Account and the Interest Differential In Canada," Cahiers de recherche 04-09, HEC Montréal, Institut d'économie appliquée.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- Maurice Obstfeld & Kenneth Rogoff, 1994.
"The Intertemporal Approach to the Current Account,"
NBER Working Papers
4893, National Bureau of Economic Research, Inc.
- 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.
- Rubaszek, Michał, 2012. "The Role Of Two Interest Rates In The Intertemporal Current Account Model," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S2), pages 176-189, September.
- Roger C. Kormendi & Aris Protopapadakis, 2004.
"Budget Deficits, Current Account Deficits And Interest Rates: The Systematic Evidence On Ricardian Equivalence,"
- Roger Kormendi & Aris Protopapadakis, 2004. "Budget Deficits, Current Account Deficits and Interest Rates: The Systematic Evidence on Ricardian Equivalence," Macroeconomics 0404010, EconWPA.
- 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.
- Philip R. Lane & Gian Maria Milesi-Ferretti, 2002.
"Long-Term Capital Movements,"
in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136
National Bureau of Economic Research, Inc.
- Philip R. Lane & Gian-Maria Milesi-Ferretti, 2001. "Long-Term Capital Movements," IMF Working Papers 01/107, International Monetary Fund.
- Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "Long-Term Capital Movements," CEPR Discussion Papers 2873, C.E.P.R. Discussion Papers.
- Philip R. Lane & Gian Milesi-Ferretti, 2001. "Long-Term Capital Movements," NBER Working Papers 8366, National Bureau of Economic Research, Inc.
- Philip Lane & Gian Maria Milesi-Ferretti, 2001. "Long-Term Capital Movements," Trinity Economics Papers 200112, Trinity College Dublin, Department of Economics.
- Philip Lane & Gian Maria Milesi-Ferretti, 2001. "Long-Term Capital Movements," CEG Working Papers 20018, Trinity College Dublin, Department of Economics.
- Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
When requesting a correction, please mention this item's handle: RePEc:etr:series:v:3:y:2012:i:2:p:048-054. 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: (Andrew Godwin)
If references are entirely missing, you can add them using this form.