Accounting for Global Dispersion of Current Accounts

By Jaewoo Lee, Yongsung Chang, Sun-Bin Kim

December 1, 2009

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Jaewoo Lee, Yongsung Chang, and Sun-Bin Kim. Accounting for Global Dispersion of Current Accounts, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We undertake a quantitative analysis of the dispersion of current accounts in an open economy version of incomplete insurance model, incorporating important market frictions in trade and financial flows. Calibrated with conventional parameter values, the stochastic stationary equilibrium of the model with limited borrowing can account for about two-thirds of the global dispersion of current accounts. The easing of financial frictions can explain nearly all changes in the current account dispersion in the past four decades whereas the easing of trade frictions has almost no impact on the current account dispersion.

Subject: Current account, Current account balance, Current account imbalances, Foreign assets, Trade balance

Keywords: Financial market, Interest rate, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/276
Stock No:

WPIEA2009276
ISBN:

9781451874211
ISSN:

1018-5941

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