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The impact of financial (de)regulation on current account balances

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  • Enrique Moral-Benito

    () (Banco de España)

  • Oliver Roehn

    (OECD and CESIFO)

Abstract

Global imbalances and financial market (de)regulation both feature prominently among the potential causes of the global financial crisis, but they have been generally discussed separately. In this paper, we take a different angle and investigate the relationship between financial market regulation and current account balances, an area for which there is limited empirical evidence. We use a panel of countries over the period 1980-2010 and employ a novel empirical approach which allows us to simultaneously account for model uncertainty, current account persistence and unobserved heterogeneity. We find robust evidence that financial market regulations affect current account balances and that different aspects of these regulations can have opposing effects on the current account. In particular we find that lowering bank entry barriers is negatively associated with the current account balance. In contrast, bank privatisation and securities market deregulation tend to raise current account balances. Our results also highlight the need to control for persistence and unobserved heterogeneity. Once we control for these factors, we find robust evidence for a wide range of current account theories in contrast to previous studies.

Suggested Citation

  • Enrique Moral-Benito & Oliver Roehn, 2014. "The impact of financial (de)regulation on current account balances," Working Papers 1424, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1424
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    References listed on IDEAS

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    Cited by:

    1. Leonor Coutinho & Alessandro Turrini & Stefan Zeugner, 2018. "Methodologies for the Assessment of Current Account Benchmarks," European Economy - Discussion Papers 2015 - 086, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Desbordes, Rodolphe & Koop, Gary & Vicard, Vincent, 2018. "One size does not fit all… panel data: Bayesian model averaging and data poolability," Economic Modelling, Elsevier, vol. 75(C), pages 364-376.
    3. Yin-Wong Cheung & Sven Steinkamp & Frank Westermann, 2020. "A Tale of Two Surplus Countries: China and Germany," Open Economies Review, Springer, vol. 31(1), pages 131-158, February.
    4. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 90110, University Library of Munich, Germany, revised 16 Nov 2018.
    5. Piotr Dybka & Bartosz Olesiński & Marek Rozkrut & Andrzej Torój, 2020. "Measuring the uncertainty of shadow economy estimates using Bayesian and frequentist model averaging," Working Papers 2020-046, Warsaw School of Economics, Collegium of Economic Analysis.
    6. Beata K. Bierut & Piot Dybka, 2019. "Institutional determinants of export competitiveness among the EU countries: evidence from Bayesian model averaging," Working Papers 2019-043, Warsaw School of Economics, Collegium of Economic Analysis.
    7. Turrini, Alessandro & Zeugner, Stefan, 2019. "Benchmarks for net international investment positions," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 149-164.
    8. Serhat Yuksel & Mustafa Ozsari, 2016. "Impact of Consumer Loans on Inflation and Current Account Deficit: A Toda Yamamoto Causality Test for Turkey," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 2(2), pages 3-14, December.
    9. Florian Morvillier, 2018. "The role of exchange rate undervaluations on the inflation-growth nexus," EconomiX Working Papers 2018-15, University of Paris Nanterre, EconomiX.
    10. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    current account; financial markets; financial regulation; Bayesian model averaging; model uncertainty;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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