Financial Regulation and the Current Account.

By: Wieladek, TomaszContributor(s): Lanau, SergiMaterial type: TextTextSeries: IMF Working PapersPublisher: Washington : International Monetary Fund, 2012Copyright date: ©2012Description: 1 online resource (53 pages)Content type: text Media type: computer Carrier type: online resourceISBN: 9781475578546Subject(s): Balance of payments -- Mathematical models | Finance, Public -- Econometric models | Fiscal policy -- Mathematical modelsGenre/Form: Electronic books.Additional physical formats: Print version:: Financial Regulation and the Current AccountDDC classification: 332.450724 LOC classification: HG3882 -- .L36 2012ebOnline resources: Click to View
Contents:
Cover -- Contents -- I. Introduction -- II. Theory -- A. How does financial regulation affect the response of the current account to output shocks? -- III. Empirical methodology and data -- A. General methodology -- B. Identification of net output shocks -- C. Estimation and inference -- D. Data -- IV. Empirical results -- A. Robustness -- V. Conclusion -- References -- Appendix -- A. Appendix -- A.1. Deriving the linearized budget constraint -- A.2. Derivation of the current account reaction function with external habits and a constant world real interest rate -- A.3. Derivation of the current account reaction function with internal habits and a constant world real interest rate -- A.4. Derivation of the current account reaction function under a stochastic time-varying world real interest rate and no habitual consumption -- Tables -- 1. Sign restrictions -- 2. Country sample -- Figures -- 1. Size of current account imbalances -- 2. Financial deregulation index -- 3. Current account persistence -- 4. Impulse response functions to log level net output shock - financial regulation -- 5. Impulse response functions to log difference net output shock - financial regulation -- 6. Impulse response functions to log level net output shock - capital account openness -- 7. Impulse response functions to log difference net output shock - capital account openness -- 8. Impulse response functions to log level output shock - financial regulation controling for fx regime -- 9. Impulse response functions to log difference output shock - financial regulation controling for fx regime -- 10. Impulse response functions to log level output shock - capital account openness controling for fx regime -- 11. Impulse response functions to log difference output shock - capital account openness controling for fx regime -- 12. Histogram of the square root of λ.
Summary: This paper examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the current account response to a net output shock. The theory is tested with an interacted panel VAR model where the coefficients are allowed to vary with the degree of financial regulation. The current account reaction to an output shock is 60% larger and substantially more persistent in a country with low financial regulation than in one with high financial regulation.
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Cover -- Contents -- I. Introduction -- II. Theory -- A. How does financial regulation affect the response of the current account to output shocks? -- III. Empirical methodology and data -- A. General methodology -- B. Identification of net output shocks -- C. Estimation and inference -- D. Data -- IV. Empirical results -- A. Robustness -- V. Conclusion -- References -- Appendix -- A. Appendix -- A.1. Deriving the linearized budget constraint -- A.2. Derivation of the current account reaction function with external habits and a constant world real interest rate -- A.3. Derivation of the current account reaction function with internal habits and a constant world real interest rate -- A.4. Derivation of the current account reaction function under a stochastic time-varying world real interest rate and no habitual consumption -- Tables -- 1. Sign restrictions -- 2. Country sample -- Figures -- 1. Size of current account imbalances -- 2. Financial deregulation index -- 3. Current account persistence -- 4. Impulse response functions to log level net output shock - financial regulation -- 5. Impulse response functions to log difference net output shock - financial regulation -- 6. Impulse response functions to log level net output shock - capital account openness -- 7. Impulse response functions to log difference net output shock - capital account openness -- 8. Impulse response functions to log level output shock - financial regulation controling for fx regime -- 9. Impulse response functions to log difference output shock - financial regulation controling for fx regime -- 10. Impulse response functions to log level output shock - capital account openness controling for fx regime -- 11. Impulse response functions to log difference output shock - capital account openness controling for fx regime -- 12. Histogram of the square root of λ.

This paper examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the current account response to a net output shock. The theory is tested with an interacted panel VAR model where the coefficients are allowed to vary with the degree of financial regulation. The current account reaction to an output shock is 60% larger and substantially more persistent in a country with low financial regulation than in one with high financial regulation.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2018. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.

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