In this paper we present a novel approach to the empirical validation of the intertemporal approach to the current account. We develop a calibrated model highlighting the role of consumption smoothing and capital accumulation in the economic convergence process. After solving the model, we...

We assess the cointegration relationship between current account and budget balances, and effective real exchange rates, using recent bootstrap panel cointegration techniques and SUR methods. We investigate the magnitude of the relationship between the two imbalances for each country for the...

We use a structural VAR with sign restrictions to jointly identify the impact of monetary policy, private absorption, technology and oil price shocks on current account fluctuations in the U.S.. We derive the sign restrictions from theoretical impulse response functions of a DSGE model with oil,...

This paper analyses the empirical relationship between fiscal policy and the current account of the balance of payments and considers how Ricardian equivalence changes this relationship. To do so, we estimate a dynamic panel threshold model for 22 industrialised countries in which the...

The paper extends the standard intertemporal model of the current account to include two important stylised facts: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, the paper derives a closed form solution for consumption in the presence...

This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open economy model to analyse both dimensions of macroeconomic adjustment in China under both flexible and fixed exchange rate regimes. The model-based results indicate that...

The paper analyses the effect of equity price shocks on current account positions for the G7 industrialized countries in 1974-2007. It uses a Bayesian VAR with sign restrictions for the identification of asset price shocks and to test empirically for their effect on current accounts. Such shocks...

Currently the U.S. is experiencing record budget and current account deficits, a phenomenon familiar from the "Twin Deficits" discussion of the 1980s. In contrast, during the 1990s productivity growth has been identified as the primary cause of the US current account deficit. We suggest a...

This paper reviews three different concepts of equilibrium exchange rates that are widely used in policy analysis and constitute the backbone of the IMF CGER assessment: the Macroeconomic Balance, the External Sustainability and the reduced form approaches. We raise a number of econometric...

This paper analyzes the relation between exchange rate volatility and several macroeconomic variables, namely real per capita output growth, the credit cycle, the stock of inward foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member...