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Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility

Author

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  • Akihisa Shibata
  • Mototsugu Shintani
  • Takayuki Tsuruga

Abstract

The current account in developed countries is highly persistent and volatile in comparison to their output growth. The standard intertemporal current account model with rational expectations (RE) fails to explain the observed current account and consumption dynamics. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for the consumption dynamics, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility explains both the current account and consumption, provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered.

Suggested Citation

  • Akihisa Shibata & Mototsugu Shintani & Takayuki Tsuruga, 2018. "Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility," CAMA Working Papers 2018-56, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2018-56
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-01/56_2018_shibata_shintani_tsuruga.pdf
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    Cited by:

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    2. Amadou Woury Diallo, 2020. "Causes of Current Account Fluctuations in West African Monetary Union," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 7(1), pages 46-63.
    3. Andrey Polbin & Sergey Sinelnikov-Murylev, 2024. "Developing and impulse response matching estimation of the DSGE model for the Russian economy," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 73, pages 5-34.
    4. Leon A. Petrosyan & David W.K. Yeung, 2020. "Cooperative Dynamic Games with Durable Controls: Theory and Application," Dynamic Games and Applications, Springer, vol. 10(4), pages 872-896, December.

    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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

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