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What Drives the Current Account in Comodity Exporting Countries? The Cases of Chile and New Zealand

In: Current Account and External Financing

  • Juan Pablo Medina

    (Banco Central de Chile)

  • Anella Munro

    (Bank for International Settlements)

  • Claudio Soto

    (Banco Central de Chile)

This paper uses a DSGE model to explore what factors explain current account developments in Chile and New Zealand, two small open economies that are intensive commodity exporters. The model estimation shows that investment-specific shocks, foreign financial changes, and foreign demand shocks account for the bulk of the variation in the current accounts of the two countries. In New Zealand, fluctuations in commodity export prices have also been important. Counterfactual experiments indicate that (i) a peso denomination of the Chilean external debt would reduce the impact of external shocks on domestic variables; and (ii) changes in the degree of monetary policy aggressiveness in New Zealand offers little scope for modifying the exchange rate and current account dynamics.

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This chapter was published in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Current Account and External Financing, , chapter 10, pages 369-434, 2008.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v12c10pp369-434.
Handle: RePEc:chb:bcchsb:v12c10pp369-434
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