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Are There Thresholds of Current Account Adjustment in the G7?

In: G7 Current Account Imbalances: Sustainability and Adjustment

  • Richard H. Clarida
  • Manuela Goretti
  • Mark P. Taylor

We find evidence of threshold behavior in current account adjustment for the G7 countries, such that the dynamics of adjustment towards equilibrium depend upon whether the current-account/ net-output ratio breaches estimated, country specific current account surplus or deficit thresholds. Both the speeds of adjustment and the size of the thresholds are found to differ significantly across countries. In addition, we also find evidence of shifts in means and variances of exchange rate changes, stock returns, and interest differentials that coincide with the current account adjustment regimes identified by the model.

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This chapter was published in:
  • Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0120.
    Handle: RePEc:nbr:nberch:0120
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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