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Accounting for Global Dispersion of Current Accounts

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Author Info
Yongsung Chang () (University of Rochester)
Sun-Bin Kim () (Department of Economics, Korea University)
Jaewoo Lee () (International Monetary Fund)

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Abstract

We undertake a quantitative analysis of the dispersion of current accounts in an open economy version of incomplete insurance model, incorporating important market frictions in trade and financial flows. Calibrated with conventional parameter values, the stochastic stationary equilibrium of the model with limited borrowing can account for about two-thirds of the global dispersion of current accounts. The easing of financial frictions can explain nearly all changes in the current account dispersion in the past four decades whereas the easing of trade frictions has almost no impact on the current account dispersion.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_548.pdf
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Publisher Info
Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 548.

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Length: 33 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:roc:rocher:548

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Postal: UNIVERSITY OF ROCHESTER, CENTER FOR ECONOMIC RESEARCH, DEPARTMENT OF ECONOMICS, HARKNESS 231 ROCHESTER NEW YORK 14627 U.S.A.

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Related research
Keywords: Distribution of Current Account; Incomplete Markets; Frictions.;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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  8. Menzie D. Chinn & Shang-Jin Wei, 2008. "A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?," NBER Working Papers 14420, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2002-2), pages 147-210. [Downloadable!]
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