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Financial Regulation and the Current Account

Author

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  • Tomasz Wieladek
  • Sergi Lanau

Abstract

This paper examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the current account response to a net output shock. The theory is tested with an interacted panel VAR model where the coefficients are allowed to vary with the degree of financial regulation. The current account reaction to an output shock is 60% larger and substantially more persistent in a country with low financial regulation than in one with high financial regulation.

Suggested Citation

  • Tomasz Wieladek & Sergi Lanau, 2012. "Financial Regulation and the Current Account," IMF Working Papers 12/98, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/98
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Moral-Benito, Enrique & Roehn, Oliver, 2016. "The impact of financial regulation on current account balances," European Economic Review, Elsevier, vol. 81(C), pages 148-166.
    2. Teresa Sastre & Francesca Viani, 2014. "Countries’ safety and competitiveness, and the estimation of current account misalignments," Working Papers 1401, Banco de España;Working Papers Homepage.
    3. Silvia Delrio, 2016. "Estimating the effects of global uncertainty in open economies," Working Papers 2016:19, Department of Economics, University of Venice "Ca' Foscari".
    4. Benedicta Marzinotto, 2017. "Euro area macroeconomic imbalances and their asymmetric reversal: the link between financial integration and income inequality," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(1), pages 83-104, April.
    5. João Barata R. B. Barroso, 2014. "External Sustainability and Gross Positions: are Brazilian external accounts sustainable?," Working Papers Series 362, Central Bank of Brazil, Research Department.

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