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Current And Capital Account Interdependence: An Empirical Test


  • Tuck Cheong Tang
  • Dietrich Fausten


This study uses two alternative specifications to test the interdependence between the current and capital accounts of the balance of payments. The empirical specifications, derived from the balance of payments constraint and from national income accounting relationships, respectively, yield consistent support for the interdependence hypothesis. The balance of payments specification returns positive findings for nine of the ten sample countries. These are corroborated by the general equilibrium specification in three instances. Neglect of the comprehensive lag structure of the underlying model may account for the relatively weak support from the general equilibrium specification of the interdependence hypothesis.

Suggested Citation

  • Tuck Cheong Tang & Dietrich Fausten, 2008. "Current And Capital Account Interdependence: An Empirical Test," Monash Economics Working Papers 04/08, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2008-04

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    References listed on IDEAS

    1. Dietrich K. Fausten, 1990. "Current and Capital Account Interdependence," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(2), pages 273-292, January.
    2. Chorng-Huey Wong & Luis Carranza, 1999. "Policy Responses to External Imbalances in Emerging Market Economies: Further Empirical Results," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-5.
    3. Tuck Cheong Tang, 2006. "The influences of economic openness on Japan's balancing item: an empirical note," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 7-10.
    4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    5. Dietrich K. Fausten & Brett Pickett, 2004. "'Errors & Omissions' in the Reporting of Australia's Cross-Border Transactions," Australian Economic Papers, Wiley Blackwell, vol. 43(1), pages 101-115, March.
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    Cited by:

    1. Maria Siranova & Menbere Workie Tiruneh, 2016. "The determinants of errors and omissions in a small and open economy: The case of Slovakia," Working Papers wp73, Institute of Economic Research, SAS, revised 08 Apr 2016.

    More about this item


    Current account; Capital account; Developing countries; G-5; Interdependence;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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