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Investment and the Current Account: A Triangular Model of the G-7 Key words: Investment; current account; triangular simultaneous equations model; random coefficients regression model

  • Talan B. Iscan
  • U.L. Gouranga Rao

    ()

    (Department of Economics, Dalhousie University)

The joint behavior of investment and the current account is derived as a triangular simultaneous equations model. To estimate this model for the G7 countries, we propose a full-information GLS estimator for panel data that extends Zellner-Theil three-stage least squares estimator and allows for parameter heterogeneity across individual countries. We find that the null of parameter homogeneity is rejected, that global productivity shocks common to the G7 significant impact on individual country investment movements, and that their influence on investment exceeds that of country-specific productivity shocks. The common productivity shocks are also found to have significant effect on the current account, but the response is asymmetric across countries.

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File URL: http://www.economics.dal.ca/RePEc/dal/wparch/rao.pdf
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Paper provided by Dalhousie, Department of Economics in its series Department of Economics at Dalhousie University working papers archive with number rao.

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Length: 33 pages
Date of creation: 10 Apr 2000
Date of revision:
Handle: RePEc:dal:wparch:rao
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  1. Whitney K. Newey & James L. Powell & Francis Vella, 1998. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Working papers 98-6, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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  7. Reuven Glick & Kenneth Rogoff, 1993. "Global Versus Country-Specific Productivity Shocks and the Current Acocount," Boston University - Institute for Economic Development 31, Boston University, Institute for Economic Development.
  8. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-85, March.
  9. Gregory, Allan W. & Head, Allen C., 1999. "Common and country-specific fluctuations in productivity, investment, and the current account," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 423-451, December.
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  13. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
  14. Donald Robertson & James Symons, 1991. "Some Strange Properties of Panel Data Estimators," CEP Discussion Papers dp0044, Centre for Economic Performance, LSE.
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  17. James M. Nason & John H. Rogers, 1999. "Investment and the current account in the short run and the long run," International Finance Discussion Papers 647, Board of Governors of the Federal Reserve System (U.S.).
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