Common Stochastic Trends in the Current Account

F.Y. Kumah

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Abstract

Solow residuals are used as proxies for productivity shocks in many empirical studies.Considering the shortcomings of this approach this paper proposes the common trends approach as an alternative.The common trends econometric technique is utilized here in an attempt to identify and analyze the long run effects of country-specific and global productivity shocks on fluctuations in investment and the current account.The theoretical framework utilized provides long run restrictions relevant for identifying global and country-specific productivity shocks.Our estimations yield the following stylized facts.Generally, consistent with theoretical predictions, the long run effects of positive idiosyncratic (country-specific) productivity shocks on the current account are significantly negative.Further, permanent global shocks are impotent (by theoretical restriction) in explaining fluctuations in the current account though very significant in explaining investment fluctuations.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages34
Volume1996-84
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-84

Fingerprint

Current account
Common stochastic trends
Productivity shocks
Fluctuations
Common trends
Theoretical framework
Prediction
Econometrics
Empirical study
Long-run restrictions
Stylized facts
Solow residual

Keywords

  • current account
  • stochastic processes
  • capital movements

Cite this

Kumah, F. Y. (1996). Common Stochastic Trends in the Current Account. (CentER Discussion Paper; Vol. 1996-84). Tilburg: Macroeconomics.
Kumah, F.Y. / Common Stochastic Trends in the Current Account. Tilburg : Macroeconomics, 1996. (CentER Discussion Paper).
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Kumah, FY 1996 'Common Stochastic Trends in the Current Account' CentER Discussion Paper, vol. 1996-84, Macroeconomics, Tilburg.

Common Stochastic Trends in the Current Account. / Kumah, F.Y.

Tilburg : Macroeconomics, 1996. (CentER Discussion Paper; Vol. 1996-84).

Research output: Working paperDiscussion paperOther research output

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AB - Solow residuals are used as proxies for productivity shocks in many empirical studies.Considering the shortcomings of this approach this paper proposes the common trends approach as an alternative.The common trends econometric technique is utilized here in an attempt to identify and analyze the long run effects of country-specific and global productivity shocks on fluctuations in investment and the current account.The theoretical framework utilized provides long run restrictions relevant for identifying global and country-specific productivity shocks.Our estimations yield the following stylized facts.Generally, consistent with theoretical predictions, the long run effects of positive idiosyncratic (country-specific) productivity shocks on the current account are significantly negative.Further, permanent global shocks are impotent (by theoretical restriction) in explaining fluctuations in the current account though very significant in explaining investment fluctuations.

KW - current account

KW - stochastic processes

KW - capital movements

M3 - Discussion paper

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Kumah FY. Common Stochastic Trends in the Current Account. Tilburg: Macroeconomics. 1996. (CentER Discussion Paper).