Recent G3 Current Account Imbalances: How Important are Structural Factors? / Richard Clarida, Joe Prendergast.

Format:

Book

Author/Creator:

Clarida, Richard.

Contributor:

National Bureau of Economic Research.

Prendergast, Joe.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6935.

NBER working paper series no. w6935

Language:

English

Subjects (All):

Accounts current.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Cambridge, Mass : National Bureau of Economic Research, 1999.

Summary:

This paper implements a novel empirical approach for estimating the importance of structural factors in explaining the recent behavior of G3 current account positions. Following the contribution of Sims (1982), we employ a tractable econometric framework that can be used to answer the following basic question: assuming that there is a stable underlying structure that links the current account with other macroeconomic variables such as economic growth, world demand, and the real exchange rate, how important are the observed departures of these variables from their long run equilibrium levels in accounting for the observed adjustments in a country's current account? Our approach interprets the departure of the actual current account from this estimated structural component of the current account path as arising from a combination of cyclical and idiosyncratic factors. The cyclical influences on the current account are assumed to be captured by the deviations of the multilateral real exchange rate, home GDP growth, and global GDP growth from their respective long run averages.

Notes:

Print version record

February 1999.