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The evolution of Cambodian current account: A dynamic general equilibrium analysis

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  • Kheng, Veasna
  • Pan, Lei

Abstract

This paper develops and estimates a small open economy real-business cycle model to study the dynamics of Cambodian current account. Differing from previous studies, we include net unilateral transfers and net foreign direct investment (FDI) as additional sources of macroeconomic fluctuations. We show that these two sources explain the variations in current account better than the shocks that are widely identified in the literature (i.e. productivity and interest rate). Our model captures Cambodia’s saving-and investment behaviour and matches well the evolution of its current account. Specifically, the measurement error is nearly 4% and the correlation between data and model is around 0.93. As a step further, using our well-fitted model, we predict the future trend of Cambodian current account in the context of negative shocks in productivity, remittance, FDI and COVID-19 pandemic.

Suggested Citation

  • Kheng, Veasna & Pan, Lei, 2021. "The evolution of Cambodian current account: A dynamic general equilibrium analysis," MPRA Paper 108489, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:108489
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    real business cycle; current account; FDI; unilateral transfer; COVID-19;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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