The impact of financial regulation on current account balances

Moral‐Benito, Enrique; Roehn, Oliver

doi:10.1016/j.euroecorev.2015.07.005

Cited by 35 publications

(29 citation statements)

References 57 publications

(56 reference statements)

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“…This is consistent with the view that financial deregulation can ease liquidity constraints. In contrast, bank privatization and securities market deregulations would result in current account surpluses because of the saving-enhancing view of financial deregulation 12 . Third, financial deepening and trade openness have the opposite effect on current account balances in developing countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

Tang

2019

European Review

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This study examines whether the financial market development and integration have affected the current account balances in the European Union (EU) countries in Central and Eastern Europe (CEE) during 1996–2015. First, the results suggest that the higher bank credit flows have resulted in the current account deficits especially after EU accession. The larger pool of bank lending flows due to the foreign mergers and acquisitions has helped finance domestic investment. This has led to the larger current account deficits. Second, the results indicate that the larger stock market size due to EU accession has caused current account surpluses rather than deficits. This contradicts the findings of previous studies, which find that higher financial market development leads to current account deficit. Finally, the result confirms that financial integration has facilitated higher current account deficits. The European Monetary Union has eliminated the regulatory restrictions on cross-border capital flows. The increase in foreign capital inflows has helped finance the growing local consumption and investment needs, which has made the CEE countries run the larger current account deficits.

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Section: Literature Reviewmentioning

confidence: 99%

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

Tang

2019

European Review

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“…All authors find that financial liberalization processes tend to worsen external positions because they mostly come with a relaxation of liquidity constraints. Moral-Benito and Roehn (2016) but show that bank entry barriers predict current account deterioration, whereas deregulating securities markets and privatizing banks tends to raise the external balance.…”

Section: Introduction *mentioning

confidence: 95%

“…4 This paper relates to different strands of literature. Empirically, we add to the recent research investigating the link between broad financial reform and current accounts (Borio and Disyatat 2011;Lanau and Wieladek 2012;Moral-Benito and Roehn 2016). Similar to this literature, we test whether different dimensions of financial liberalization come with different effects on the current account after controlling for the standard long-run determinants of external positions (see, for example, Debelle and Faruqee 1996;Chinn and Prasad 2003;Lee et al 2008).…”

Section: Introduction *mentioning

confidence: 96%

“…There is a relatively broad consensus in the literature that financial reform is indeed a multidimensional policy package involving a number of institutional changes at the level of both international and domestic credit markets, each of which may exercise a differentiated impact on private consumption/saving behavior (see, for example, Bandiera et al 2000). The same broad approach to financial liberalization is used in Lanau and Wieladek (2012) and Moral-Benito and Roehn (2016), which together with Ferrero (2012) and Borio and Disyatat (2011) are the only available analyses of the impact of broad financial reform on current account positions. All authors find that financial liberalization processes tend to worsen external positions because they mostly come with a relaxation of liquidity constraints.…”

Section: Introduction *mentioning

confidence: 99%

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Current Account Imbalances, Household Consumption and Debt in the Euro Area: A Tale of Two Financial Liberalizations

Marzinotto

2018

SSRN Journal

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The Robert Schuman Centre for Advanced Studies (RSCAS), created in 1992 and directed by Professor Brigid Laffan, aims to develop inter-disciplinary and comparative research and to promote work on the major issues facing the process of integration and European society.The Centre is home to a large post-doctoral programme and hosts major research programmes and projects, and a range of working groups and ad hoc initiatives. The research agenda is organised around a set of core themes and is continuously evolving, reflecting the changing agenda of European integration and the expanding membership of the European Union.Details of the research of the Centre can be found on: AbstractThis paper explores the extent to which financial liberalization in the euro area had a differentiated impact on members' private consumption patterns and in turn on their current account positions as a function of who got indebted in the first place. Theoretically, it builds on an inter-temporal consumption model augmented with household heterogeneity. Low/middle income groups are impatient and credit-constrained, whilst high-income groups are patient and under no constraint. Increased access to credit in previously financially repressed countries implies a relaxation of collateral constraints specifically for low-income groups, who differently from high-income agents borrow to finance current consumption. It follows that financial liberalization is associated with deteriorating external positions there where initial levels of financial openness and inclusion are lowest and the share of the low/middle-income group largest.

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“…Overall, our results highlight the need for the flexible modelling approach that we implement. Two recent papers are closely related to our empirical application: Ca Zorzi et al (2012) and Moral-Benito and Roehn (2016). Both use BMA to investigate the determinants of the CAB.…”

Section: Introductionmentioning

confidence: 99%

One size does not fit all… panel data: Bayesian model averaging and data poolability

2018

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We show in this paper why researchers ought to pay particular attention to the issues of model uncertainty and data poolability in their panel data applications. We focus on the identification of robust determinants of current account balances (CABs). Applying Bayesian Model Averaging, we adopt a flexible modelling approach to highlight that (i) some determinants have limited relevance when accounting for model uncertainty; (ii) slope homogeneity is unlikely to be a valid assumption; iii) cross-sectional and time-series relationships can diverge. We explain why estimating cross-sectional estimates is valuable, even in the potential presence of an omitted variable bias, and suggest a way for assessing the effects of unobserved country heterogeneity.

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The impact of financial regulation on current account balances

Cited by 35 publications

References 57 publications

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

Current Account Imbalances, Household Consumption and Debt in the Euro Area: A Tale of Two Financial Liberalizations

One size does not fit all… panel data: Bayesian model averaging and data poolability

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