Working Paper: NBER ID: w12193
Authors: Richard H. Clarida; Manuela Goretti; Mark P. Taylor
Abstract: We find evidence of threshold behavior in current account adjustment for the G7 countries, such that the dynamics of adjustment towards equilibrium depend upon whether the current-account/ net-output ratio breaches estimated, country specific current account surplus or deficit thresholds. Both the speeds of adjustment and the size of the thresholds are found to differ significantly across countries. In addition, we also find evidence of shifts in means and variances of exchange rate changes, stock returns, and interest differentials that coincide with the current account adjustment regimes identified by the model.
Keywords: No keywords provided
JEL Codes: F320; F410
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| crossing surplus and deficit thresholds (H62) | adjustment behavior (E71) |
| current account net output ratio breaches estimated country-specific thresholds (F32) | speed of adjustment (F32) |
| shifts in means and variances of exchange rate changes, stock returns, and interest differentials (F31) | current account adjustment regimes (F32) |
| current account imbalance exceeds a certain threshold (F32) | adjustment tendency (D91) |