IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Financial And Current Account Interrelationship: An Empirical Test

Listed author(s):
  • Evan LAU
  • Nelson FU
Registered author(s):

Theoretically, financial account (FA) serves as a means of financing deficit in a country’s current account (CA). With the outburst of the rapid globalization and the liberalization of the capital markets, the function of FA could be a major cause of CA instability. This study empirically investigates the interrelationship between CA and the components of FA for the four crisis-affected Asian countries of Indonesia, Korea, the Philippines and Thailand. Empirical results show that deficit in CA mirror the surplus in FA supporting the theoretical foundation of balance of payment (BOP). We observed CA Granger causes FA suggesting that CA can be used as the control policy variable for the flows of capital in these countries. Therefore, the innovation of CA (whether deficit or surplus) would be important information for the liberalization and globalization of FA.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.jaes.reprograph.ro/articles/spring2011/LauE_FuNelson.pdf
Download Restriction: no

Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 6 (2011)
Issue (Month): 1(15)/ Spring 2011 ()
Pages: 34-42

as
in new window

Handle: RePEc:ush:jaessh:v:6:y:2011:i:1(15)_spring2011:p:128
Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

More information through EDIRC

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.:

as
in new window


  1. Cashin, P., 1996. "Are Australia's Current Account deficits Excessive?," Department of Economics - Working Papers Series 533, The University of Melbourne.
  2. Glick, Reuven & Hutchison, Michael, 2005. "Capital controls and exchange rate instability in developing economies," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 387-412, April.
  3. Maurice Obstfeld & Kenneth Rogoff, 2004. "The Unsustainable US Current Account Position Revisited," NBER Working Papers 10869, National Bureau of Economic Research, Inc.
  4. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  5. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
  6. Yan, Ho-don & Yang, Cheng-lang, 2008. "Foreign Capital Inflows and the Current Account Imbalance: Which Causality Direction?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 434-461.
  7. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  8. Piersanti, Giovanni, 2000. "Current account dynamics and expected future budget deficits: some international evidence," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 255-271, April.
  9. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
  10. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  11. Fountas Stilianos & Wu Jyh-Lin, 1999. "Are the U.S. Current Account Deficits Really Sustainable?," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 51-58.
  12. Ben S. Bernanke, 2005. "The global saving glut and the U.S. current account deficit," Speech 77, Board of Governors of the Federal Reserve System (U.S.).
  13. Lau, Evan & Zubaidi Baharumshah, Ahmad, 2005. "Mean-reverting behavior of current account in Asian countries," Economics Letters, Elsevier, vol. 87(3), pages 367-371, June.
  14. Chorng-Huey Wong & Luis Carranza, 1999. "Policy Responses to External Imbalances in Emerging Market Economies: Further Empirical Results," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-5.
  15. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc.
  16. Christopoulos, Dimitris & León-Ledesma, Miguel A., 2010. "Current account sustainability in the US: What did we really know about it?," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 442-459, April.
  17. Ho-Don Yan, 1999. "Intertemporal current account balance and the East Asian currency crises," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(3), pages 277-288, August.
  18. Ho-don Yan, 2005. "Causal Relationship Between the Current Account and Financial Account," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(2), pages 149-162, May.
  19. Makin, Anthony J. & Narayan, Paresh Kumar, 2008. "Have US external imbalances been determined at home or abroad?," Economic Modelling, Elsevier, vol. 25(3), pages 520-531, May.
  20. Jeffrey A. Rosensweig & Ellis W. Tallman, 1991. "Fiscal policy and trade adjustment: are the deficits really twins?," FRB Atlanta Working Paper 91-2, Federal Reserve Bank of Atlanta.
  21. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
  22. Lau, Evan & Baharumshah, Ahmad Zubaidi & Haw, Chan Tze, 2006. "Current account: mean-reverting or random walk behavior?," Japan and the World Economy, Elsevier, vol. 18(1), pages 90-107, January.
  23. Fry, M.J., 1995. "Foreign Direct Investment in Mauritius and the Far East," Papers 95-07, University of Birmingham - International Financial Group.
  24. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "Savings Gluts and Interest Rates: The Missing Link to Europe," NBER Working Papers 11520, National Bureau of Economic Research, Inc.
  25. Lori Leachman & Bill Francis, 2002. "Twin Deficits: Apparition or Reality?," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1121-1132.
  26. Irandoust Manuchehr & Sjoo Boo, 2000. "The Behavior of the Current Account in Response to Unobservable and Observable Shocks," International Economic Journal, Taylor & Francis Journals, vol. 14(4), pages 41-57.
  27. repec:kap:iaecre:v:5:y:1999:i:3:p:277-288 is not listed on IDEAS
  28. George Vamvoukas, 1999. "The twin deficits phenomenon: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1093-1100.
  29. repec:kap:iaecre:v:11:y:2005:i:2:p:149-162 is not listed on IDEAS
  30. Dietrich K. Fausten, 1990. "Current and Capital Account Interdependence," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(2), pages 273-292, January.
  31. -, 1995. "Foreign direct investment in the Caribbean," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 27404, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  32. Yan, Ho-don, 2007. "Does capital mobility finance or cause a current account imbalance?," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(1), pages 1-25, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ush:jaessh:v:6:y:2011:i:1(15)_spring2011:p:128. 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: (Laura Stefanescu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.