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The Role of Stock Markets in Current Account Dynamics; Evidence From the United States

  • Benoît Mercereau

This paper tests a model of the role of stock markets in current account dynamics, developed in a companion paper. With U.S. data, the model performs better than the same model without stock markets. An insight given by the model is that the current account might help predict future stock market performance. This property receives some preliminary empirical confirmation. The results also suggest that stock markets matter to the current account dynamics.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/108.

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Length: 35
Date of creation: 01 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/108
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  1. Lynch, Anthony W, 1996. " Decision Frequency and Synchronization across Agents: Implications for Aggregate Consumption and Equity Return," Journal of Finance, American Finance Association, vol. 51(4), pages 1479-97, September.
  2. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  3. Kraay, Aart & Ventura, Jaume, 1997. "Current accounts in debtor and creditor countries," Policy Research Working Paper Series 1825, The World Bank.
  4. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers 2223, C.E.P.R. Discussion Papers.
  5. C. John McDermott & Paul Cashin, 1996. "Are Australia's Current Account Deficits Excessive?," IMF Working Papers 96/85, International Monetary Fund.
  6. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  7. 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.
  8. Tim Callen & Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 99/181, International Monetary Fund.
  9. Sanford J Grossman & Guy Laroque, 2003. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Levine's Working Paper Archive 618897000000000803, David K. Levine.
  10. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-73, November.
  11. Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, vol. 105(428), pages 107-28, January.
  12. Steven J. Davis & Jeremy Nalewaik & Paul Willen, 2000. "On the Gains to International Trade in Risky Financial Assets," NBER Working Papers 7796, National Bureau of Economic Research, Inc.
  13. Olumuyiwa Adedeji, 2001. "The Size and Sustainability of the Nigerian Current Account Deficits," IMF Working Papers 01/87, International Monetary Fund.
  14. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity-Premium Puzzle," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 257-330 National Bureau of Economic Research, Inc.
  15. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries; Are they a Problem?," IMF Working Papers 97/51, International Monetary Fund.
  16. David A. Marshall & Nayan G. Parekh, 1999. "Can Costs of Consumption Adjustment Explain Asset Pricing Puzzles?," Journal of Finance, American Finance Association, vol. 54(2), pages 623-654, 04.
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