IDEAS home Printed from https://ideas.repec.org/p/ise/remwps/wp02522022.html
   My bibliography  Save this paper

Volatility and the Current Account: Extending the Evidence

Author

Listed:
  • João Tovar Jalles
  • Georgios Karras

Abstract

Consistent with standard theoretical priors, generally based on the precautionary saving motive, the empirical literature has documented that increased macroeconomic volatility is associated with improvements in the current account balance in advanced economies. Using an updated and extended data set, we first confirm this relationship, but also show that it does not hold in developing economies, where macroeconomic volatility is not systematically associated with changes in the current account balance. When we explore potential mechanisms for this asymmetry, we find evidence in favor of precautionary saving in both groups of countries, which allows us to rule this out as the reason behind the observed difference in the current-account/volatility relationship.

Suggested Citation

  • João Tovar Jalles & Georgios Karras, 2022. "Volatility and the Current Account: Extending the Evidence," Working Papers REM 2022/0252, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02522022
    as

    Download full text from publisher

    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0252_2022.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    2. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 69-102.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    4. Ghosh, Atish R. & Ostry, Jonathan D., 1997. "Macroeconomic uncertainty, precautionary saving, and the current account," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 121-139, September.
    5. Georgios Karras, 2016. "Macroeconomic Volatility and the Current Account: Evidence from a Panel of OECD Countries," International Economic Journal, Taylor & Francis Journals, vol. 30(3), pages 322-338, July.
    6. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    7. Andrés Fernández & Adam Gulan, 2015. "Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 153-188, July.
    8. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    9. Fernández, Andrés & Gulan, Adam, 2012. "Interest rates and business cycles in emerging economies: the role of financial frictions," Bank of Finland Research Discussion Papers 23/2012, Bank of Finland.
    10. Fogli, Alessandra & Perri, Fabrizio, 2015. "Macroeconomic volatility and external imbalances," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 1-15.
    11. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jalles, João Tovar & Karras, Georgios, 2023. "Macroeconomic volatility and the current account: Extending the evidence," Economic Modelling, Elsevier, vol. 125(C).
    2. Saini, Seema & Ahmad, Wasim & Bekiros, Stelios, 2021. "Understanding the credit cycle and business cycle dynamics in India," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 988-1006.
    3. Baffes, John & Kabundi, Alain, 2023. "Commodity price shocks: Order within chaos?," Resources Policy, Elsevier, vol. 83(C).
    4. Peter C. B. Phillips & Zhentao Shi, 2021. "Boosting: Why You Can Use The Hp Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 521-570, May.
    5. Peter C.B. Phillips & Zhentao Shi, 2019. "Boosting the Hodrick-Prescott Filter," Cowles Foundation Discussion Papers 2192, Cowles Foundation for Research in Economics, Yale University.
    6. Viv B. Hall & Peter Thomson, 2021. "Does Hamilton’s OLS Regression Provide a “better alternative” to the Hodrick-Prescott Filter? A New Zealand Business Cycle Perspective," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(2), pages 151-183, November.
    7. Wolfgang Nierhaus & Timo Wollmershäuser, 2016. "ifo Konjunkturumfragen und Konjunkturanalyse: Band II," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72, July.
    8. Cravo, Túlio A., 2011. "Are small employers more cyclically sensitive? Evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 754-769.
    9. Duncan, Roberto, 2016. "Does the US current account show a symmetric behavior over the business cycle?," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 202-219.
    10. Jan-Philipp Dueber, 2018. "Endogenous Time-Varying Volatility and Emerging Market Business Cycles," Studies in Economics 1811, School of Economics, University of Kent.
    11. Robert J. Hodrick, 2020. "An Exploration of Trend-Cycle Decomposition Methodologies in Simulated Data," NBER Working Papers 26750, National Bureau of Economic Research, Inc.
    12. Canova, Fabio, 2020. "FAQ: How do I extract the output gap?," Working Paper Series 386, Sveriges Riksbank (Central Bank of Sweden).
    13. João Tovar Jalles & Georgios Karras, 2023. "Pandemics and Trade in the 21st Century: Evidence from five Pre-Covid Pandemics," Open Economies Review, Springer, vol. 34(4), pages 895-918, September.
    14. Carnazza, Giovanni & Liberati, Paolo & Sacchi, Agnese, 2020. "The cyclically-adjusted primary balance: A novel approach for the euro area," Journal of Policy Modeling, Elsevier, vol. 42(5), pages 1123-1145.
    15. Ángel Guillén & Gabriel Rodríguez, 2014. "Trend-cycle decomposition for Peruvian GDP: application of an alternative method," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 23(1), pages 1-44, December.
    16. Sun Xiaojin & Tsang Kwok Ping, 2019. "What cycles? Data detrending in DSGE models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(3), pages 1-23, June.
    17. Biolsi, Christopher, 2023. "Do the Hamilton and Beveridge–Nelson filters provide the same information about output gaps? An empirical comparison for practitioners," Journal of Macroeconomics, Elsevier, vol. 75(C).
    18. Aymeric Ortmans, 2020. "Evolving Monetary Policy in the Aftermath of the Great Recession," Documents de recherche 20-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    19. Joana David Avritzer, 2020. "Estimation of a long run regime for growth and demand through different filtering methods," Working Papers 2004, New School for Social Research, Department of Economics, revised Oct 2020.
    20. Canova, Fabio, 2020. "FAQ: How do I measure the Output gap?," CEPR Discussion Papers 14943, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    current account; uncertainty; volatility;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ise:remwps:wp02522022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sandra Araújo (email available below). General contact details of provider: https://rem.rc.iseg.ulisboa.pt/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.