Explaining the Global Pattern of Current Account Imbalances

Gruber, Joseph W.; Kamin, Steven B.

doi:10.2139/ssrn.854224

Cited by 77 publications

(134 citation statements)

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“…These developments in global and relative 1 Related studies point at the rapidly increasing degree of global …nancial integration and ensuing valuation e¤ects on gross international asset positions Rey 2005, Lane andMilesi-Ferretti 2005), while others underline the role of pre-cautionary motives due to uncertainty and demographics as a rationale for the high saving rates in several EMEs (e.g. Gruber andKamin 2007, Chinn andIto 2007). 2 We distinguish the exchange rate from other asset prices throughout the paper in order to stress that it a¤ects the current account through fundamentally di¤erent channels than, for example, equity prices.…”

Section: Introductionmentioning

confidence: 99%

Asset prices, exchange rates and the current account

Fratzscher

Juvenal

Sarno

2010

European Economic Review

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In 2007 all ECB publications feature a motif taken from the €20 banknote. WO R K I N G PA P E R S E R I E S N O 7 9 0 / A U G U S T 2 0 0 71 We are grateful to Harald Uhlig for helpful suggestions and advice at various stages of this paper, and to Thierry Bracke, Matthieu Bussière, Mike Clements, Valentina Corradi, Luca Dedola, Michael Ehrmann, Martin Ellison, Charles Engel, Mathias Hoffmann, Steven Kamin, Gian Maria Milesi-Ferretti, Gernot Müller, John Rogers, Rasmus Rüffer, Roland Straub, Ilias Tsiakas, Jeromin Zettelmeyer and seminar Abstract This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. It employs a Bayesian structural VAR model that requires imposing only a minimum of economically meaningful sign restrictions. We …nd that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 32% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been much less relevant, explaining less than 7% and exerting a more temporary e¤ect on the US trade balance. Our …ndings suggest that sizeable exchange rate movements may not necessarily be a key element of an adjustment of today's large current account imbalances, and that in particular relative global asset price changes could be a more potent source of adjustment.Keywords: current account; global imbalances; exchange rates; Bayesian VAR; sign restrictions.JEL Classi…cation: F32; F40; C30. ECB Working Paper Series No 790 August 2007Non-technical summaryThe debate about the origins and causes of today's large global current account imbalances continues to be highly contoversial. One camp of this debate points at the US as the culprit, and in particular at its low private and public savings, while others argue that it is a "saving glut"in Asia and among oil-exporting countries that has been the key driver of rising current account dispersions. Moreover, a number of scholars and policy makers have given central stage to the need for a large exchange rate depreciation to increase US exports and, hence, reduce its trade and current account de…cits. In general, however, there is no clear-cut empirical evidence so far showing that exchange rates have been a major driver of current account positions for advanced economies.By contrast, other scholars have pointed at the relevance of asset prices for the current account determination and adjustment through wealth e¤ects. The underlying logic is that a rise in asset prices (in particular if it is expected to be permanent) increases expected income of households and, therefore, increases their consumption.Indeed, one striking feature of the global economy over the past 15 years has been the pronounced cycles and booms in asset prices. US equity prices have risen by almost 500% and non-US stock prices by more than 200% between 1990 and 2000, before losing about one third of their value in the ...

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Section: Introductionmentioning

confidence: 99%

Asset prices, exchange rates and the current account

Fratzscher

Juvenal

Sarno

2010

European Economic Review

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“…In a study including a sample of industrialized countries, Debelle and Faruqee (1996) conclude that in a cross-sectional approach, CA positions are significantly influenced by the stage of development and demographics, while in a dynamic approach -by fiscal policy variable. Finally, adopting a panel-regression approach, Chinn and Prasad (2003), as well as Gruber and Kamin (2007) arrive at the conclusion that the present patent of external imbalances in the global economy can be hardly explained with a model based on the standard determinants of the CA -per capita income, output growth, fiscal balance, net foreign assets, economic openness, and demographic variables. Only by extending the standard framework by a variable expressing the impact of financial crisis, the model is able to capture and explain the dynamics of CA surpluses in the Asian economies.…”

Section: External Imbalances In a Monetary Union -Their Determinants mentioning

confidence: 98%

“…Authors were particularly interested in explaining the main determinants of the mid-and long-term development of the current account (CA) dynamics, as well as in answering the question of sustainability of external imbalances (Debelle and Faruqee 1996;Chinn and Prasad 2003;Gruber and Kamin 2007).…”

Section: Introductionmentioning

confidence: 99%

Current Accounts in Europe: Implications of the External Imbalances for the Future of the Common Monetary Policy

Gehringer

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Current accounts in Europe: implications of the external imbalances for the future of the common monetary policyAgnieszka Gehringer AbstractThe paper discusses the seriousness of current account imbalances in the last few decades in Europe, with a particular focus on the European Monetary Union. A closer look at the development of current accounts in European economies suggests the existence of some serious structural problems that might jeopardize economic performance of single countries, but even more importantly, of the entire monetary union. Although current account positions have been subject of numerous research projects till now, scarce interest has been offered regarding specifically the situation in the member states of the euro area and in the euro candidate countries. This lack of interest could be justified among others with the myopic conviction expressed in the literature that current account positions become irrelevant in a monetary union. Instead, there are conceptual reasons to be worried about external imbalances in a currency area, and particularly, in the current as well as potentially enlarged EMU.

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“…Most common are the dynamics of real exchange rates, productivity, government's fiscal position, interest rates and the extend and nature of trade and capital movements regulation. ( A more comprehensive discussion can be found in Gruber and Kamin [2] or IMF [3] ).…”

Section: Basicsmentioning

confidence: 99%

Demographic Dynamics, Savings, Investment and Current Account

Rusek

2018

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Abstract:The upturn in the world economy brought with it the renewed attention to the issues of current account imbalances. Whereas large part of it is political, the issue still attracts some economic attention. In this paper the empirical side of the current account dynamics is addressed. We enquire of the relationships between the current account and savings dynamics, with the emphasis on the role of the "high savings" demographic cohorts (the population and/or labor force between 40 and 64). With the emphasis on the EUs "large" countries, we conclude that there is a significant role of this "high saving" population group in determining the current account dynamics for the consistent "high" surpluses countries of Germany and Netherlands.The role of this population group is, however, rejected for France, Italy and Spain. In those countries the current account dynamics is dominated by (seemingly unexpected) liberalization of capital flows and the subsequent need for stabilization policies. Similarly, the dominant role of the demographic dynamic is rejected for the comparison, floating exchange rate countries of USA and Japan.

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Explaining the Global Pattern of Current Account Imbalances

Cited by 77 publications

References 24 publications

Asset prices, exchange rates and the current account

Asset prices, exchange rates and the current account

Current Accounts in Europe: Implications of the External Imbalances for the Future of the Common Monetary Policy

Demographic Dynamics, Savings, Investment and Current Account

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