Institutional Affiliation: Credit Suisse First Boston
|Recent G3 Current Account Imbalances: How Important are Structural Factors?|
with : w6935
This paper implements a novel empirical approach for estimating the importance of structural factors in explaining the recent behavior of G3 current account positions. Following the contribution of Sims (1982), we employ a tractable econometric framework that can be used to answer the following basic question: assuming that there is a stable underlying structure that links the current account with other macroeconomic variables such as economic growth, world demand, and the real exchange rate, how important are the observed departures of these variables from their long run equilibrium levels in accounting for the observed adjustments in a country's current account? Our approach interprets the departure of the actual current account from this estimated structural component of the current a...