Skip navigation

Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test

Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test

Guschanski, Alexander ORCID: 0000-0002-7818-8264 and Stockhammer, Engelbert (2017) Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test. [Working Paper]

This is the latest version of this item.

[img]
Preview
PDF
CA imb draft 1_00 gppe (2).pdf - Published Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (666kB) | Preview

Abstract

This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: Many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades.

Item Type: Working Paper
Uncontrolled Keywords: current account, financial flows, competitiveness, asset prices,
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Faculty of Business > Department of International Business & Economics
Last Modified: 11 Jun 2019 11:20
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/17946

Available Versions of this Item

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics