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Capital Mobility and Current Account Imbalance: Nonlinear Threshold Vector Autoregression Approach

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  • Yuan-Ming Lee
  • Kuan-Min Wang

Abstract

In this study, we utilize the growth rate of gross domestic product as the threshold variable to construct two nonlinear threshold vector autoregression models to re-examine the findings in Yan (2007:23) that “current account imbalance causes capital mobility in developed countries; capital mobility causes current account imbalance in emerging countries.” The nonlinear causality test shows that the findings of Yan (2007) can exist only in certain regimes and the primary factor that affects the causality between current account and financial account (and its components of foreign direct investment, portfolio investment, and other investment) is the asymmetry caused by the business cycle.

Suggested Citation

  • Yuan-Ming Lee & Kuan-Min Wang, 2012. "Capital Mobility and Current Account Imbalance: Nonlinear Threshold Vector Autoregression Approach," International Interactions, Taylor & Francis Journals, vol. 38(2), pages 182-217, April.
    • Handle: RePEc:taf:ginixx:v:38:y:2012:i:2:p:182-217
    DOI: 10.1080/03050629.2012.657946
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    References listed on IDEAS

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    1. William Poole, 2001. "Does the United States have a current account deficit disorder?," Speech 59, Federal Reserve Bank of St. Louis.
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