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Current And Capital Account Interdependence: An Empirical Test

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  • Tuck Cheong Tang
  • Dietrich Fausten

Abstract

This study uses two alternative specifications to test the interdependence between the current and capital accounts of the balance of payments. The empirical specifications, derived from the balance of payments constraint and from national income accounting relationships, respectively, yield consistent support for the interdependence hypothesis. The balance of payments specification returns positive findings for nine of the ten sample countries. These are corroborated by the general equilibrium specification in three instances. Neglect of the comprehensive lag structure of the underlying model may account for the relatively weak support from the general equilibrium specification of the interdependence hypothesis.

Suggested Citation

  • Tuck Cheong Tang & Dietrich Fausten, 2008. "Current And Capital Account Interdependence: An Empirical Test," Monash Economics Working Papers 04/08, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2008-04
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2008/0408interdependencetangfaustenprint.pdf
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    References listed on IDEAS

    as
    1. Dietrich K. Fausten, 1990. "Current and Capital Account Interdependence," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(2), pages 273-292, January.
    2. Chorng-Huey Wong & Luis Carranza, 1999. "Policy Responses to External Imbalances in Emerging Market Economies: Further Empirical Results," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-5.
    3. Tuck Cheong Tang, 2006. "The influences of economic openness on Japan's balancing item: an empirical note," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 7-10.
    4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    5. Dietrich K. Fausten, 1989. "Current and Capital Account Interdependence," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 12(2), pages 273-292, December.
    6. Dietrich K. Fausten & Brett Pickett, 2004. "‘Errors & Omissions’ in the Reporting of Australia's Cross‐Border Transactions," Australian Economic Papers, Wiley Blackwell, vol. 43(1), pages 101-115, March.
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    Cited by:

    1. Xiao-Jun Goh & Wen-Qi Tong & Tuck-Cheong Tang, 2019. "Financial Openness and Trade Openness Nexus: Empirical Evidence from Global Data," Capital Markets Review, Malaysian Finance Association, vol. 27(1), pages 1-18.
    2. Tanveer Ahmad Khan, 2022. "Current and Capital Account Dynamics in India: An Empirical Analysis of the Post-Reform Period," Foreign Trade Review, , vol. 57(1), pages 41-65, February.
    3. Evan LAU & Nelson FU, 2011. "Financial And Current Account Interrelationship: An Empirical Test," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(1(15)/ Sp), pages 34-42.

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    More about this item

    Keywords

    Current account; Capital account; Developing countries; G-5; Interdependence;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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