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Common Stochastic Trends in the Current Account
Kumah,F.Y.
Kumah,F.Y.
Abstract
Solow residuals are used as proxies for productivity shocks in many empirical studies.Considering the shortcomings of this approach this paper proposes the common trends approach as an alternative.The common trends econometric technique is utilized here in an attempt to identify and analyze the long run effects of country-specific and global productivity shocks on fluctuations in investment and the current account.The theoretical framework utilized provides long run restrictions relevant for identifying global and country-specific productivity shocks.Our estimations yield the following stylized facts.Generally, consistent with theoretical predictions, the long run effects of positive idiosyncratic (country-specific) productivity shocks on the current account are significantly negative.Further, permanent global shocks are impotent (by theoretical restriction) in explaining fluctuations in the current account though very significant in explaining investment fluctuations.
Description
Pagination: 34
Date
1996
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Publisher
Macroeconomics
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84.pdf
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Keywords
current account, stochastic processes, capital movements, F32 - Current Account Adjustment ; Short-Term Capital Movements, F41 - Open Economy Macroeconomics
Citation
Kumah, F Y 1996 'Common Stochastic Trends in the Current Account' CentER Discussion Paper, vol. 1996-84, Macroeconomics, Tilburg.