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Accounting for Global Dispersion of Current Accounts

  • Yongsung Chang

    (University of Rochester and Yonsei University)

  • Sun-Bin Kim

    (Yonsei University)

  • Jaewoo Lee

    (International Monetary Fund)

We develop a multi-country quantitative model of the global distribution of current account and external balances. Countries accumulate domestic capital and foreign assets to smooth consumption over time against exogenous productivity shocks in the presence of liquidity constraints. In equilibrium, optimal consumption and investment responses to persistent productivity shocks imply a degree of intertemporal substitution across countries that can explain up to one-third of the current account dispersion in the data.

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Paper provided by Yonsei University, Yonsei Economics Research Institute in its series Working papers with number 2012rwp-44.

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Length: 50 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:yon:wpaper:2012rwp-44
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