A present value test of habits and the current account

Gruber, Joseph W.

doi:10.1016/j.jmoneco.2003.12.004

Cited by 82 publications

(90 citation statements)

References 15 publications

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“…Their model provides evidence that a causal relationship from exchange rate to current account, which is supported by recent studies [23] [24]. On the contrary, monetary model augmented with current account provides theoretical basis of a causal relationship from current account to exchange rate.…”

Section: The Relationship Of Current Account and Exchange Ratementioning

confidence: 55%

Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets

Kuo

2011

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Abstract-This paper fist examines three set of bivariate cointegrations between any two of current accounts, stock markets, and currency exchange markets in ten Asian countries. Furthermore, we examined the effect of country characters on this bivariate cointegration. Our findings suggest that for three sets of cointegration test, each sample country at least exists one cointegration. India consistently exhibited a bi-directional causal relationship between any two of three indicators. Unlike Pan et al. (2007) and Phylaktis and Ravazzolo (2005), we found that such cointegration is influenced by three characteristics: capital control; flexibility in foreign exchange rates; and the ratio of trade to GDP. These characteristics are the result of liberalization in each Asian country. This implies that liberalization policies are effective on improving the cointegration between any two of financial markets and current account for ten Asian countries.

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Section: The Relationship Of Current Account and Exchange Ratementioning

confidence: 55%

Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets

Kuo

2011

Qual Quant

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“…, the current account in the habit formation model follows the same stochastic process as that in our SI model. 19 In his ICA model with habit formation, Gruber (2004) …nds that the model performs better than the model without habits in predicting the current account dynamics. His evidence also suggests good performance of our SI model.…”

Section: Persistence Of Consumption Growthmentioning

confidence: 99%

“…His analysis of SI is motivated by explaining the well-known puzzles in the two-country, open-economy models, such as the real exchange 5 We also note that, apart from information rigidity, a number of the previous studies have investigated explanations for current account dynamics and are thus closely related to our paper. Examples include Glick and Rogo¤ (1995), Ghosh and Ostry (1997), Bergin and She¤rin (2000), Işcan (2002), Gruber (2004), Kunieda and Shibata (2005), and Kano (2008Kano ( , 2009. 6 See also a recent work by Li, Luo, and Nie (2017) who use the rational inattention and study international consumption comovement puzzle.…”

Section: Introductionmentioning

confidence: 99%

“…In particular, while Luo, Nie, and Young (2012) focus on the case where the net output detrended by the HP …lter follows a stationary AR(1) process or a random walk, we consider the case where net output growth follows the AR(1) process so that a stochastic trend is always present as in other previous works in the literature. For example, see She¤rin and Woo (1990), Otto (1992), Ghosh (1995), Ghosh and Ostry (1997), Bergin and She¤rin (2000), and Gruber (2004). rate volatility puzzle and the Backus-Smith puzzle.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility

Shibata¹,

Shintani²,

Tsuruga³

2018

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The current account in developed countries is highly persistent and volatile in comparison to output growth. The standard intertemporal current account model with rational expectations (RE) fails to account for the observed current account dynamics together with persistent changes in consumption. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for persistent changes in consumption, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income and infrequently adjust their consumption. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility almost fully explains current account dynamics and the persistence of changes in consumption, if high degrees of information rigidity and imperfect capital mobility are taken into account.

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“…Lettau and Uhlig (2002), Boldrin et al (1997), or Chapman (2002. Indeed, Gruber (2004) utilizes the excess-volatility result in order to explain the high volatility of the current-account deficit in a consumption-based open-economy model. One would expect that in a closed economy similar fluctuations would be transformed into an excessively volatile riskless rate.…”

Section: Related Literaturementioning

confidence: 99%