Cost competitiveness and asset prices as determinants of the current account in emerging economies

2021 ◽  
pp. 70-83
Author(s):  
Alexander Guschanski ◽  
Engelbert Stockhammer
Keyword(s):  
Current Account ◽  
Emerging Economies ◽  
Asset Prices ◽  
Cost Competitiveness ◽  
The Current Account

Are current accounts driven by cost competitiveness or asset prices? A synthetic model and an empirical test

2020 ◽  
Vol 44 (6) ◽  
pp. 1301-1327
Author(s):  
Alexander Guschanski ◽  
Engelbert Stockhammer
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
Asset Prices ◽  
Reduced Form ◽  
Financial Flows ◽  
Labour Costs ◽  
Wide Range ◽  
Unit Labour Costs ◽  
Cost Competitiveness ◽  
The Current Account

Abstract While current account imbalances have widened in recent decades, their causes are still debated. Trade-centred approaches highlight the role of cost competitiveness, in particular unit labour costs, and aggregate demand. In contrast, finance-centred approaches focus on gross financial flows, driven by expectations and the return on assets, that impact demand and the exchange rate. This article, first, builds a simple model of the current account that provides a synthesis between the two approaches. Unit labour costs impact the current account via the real exchange rate and income distribution, while financial inflows drive up asset prices, which leads to nominal appreciation and an increase in domestic demand. Second, we estimate a reduced form of this model for 28 OECD countries from 1972 to 2014, controlling for both trade- and finance-centred channels and a wide range of control variables. Our results indicate that finance-centred channels, via equity and residential property prices, drove current account divergence in the OECD, while unit labour costs were less important. They suggest that the effects of gross financial flows deserve more attention in theoretical and empirical models of the current account.

scholarly journals Asset Prices, Exchange Rates and the Current Account

2008 ◽  
Author(s):  
Marcel Fratzscher ◽  
Luciana Juvenal ◽  
Lucio Sarno
Keyword(s):  
Exchange Rates ◽  
Current Account ◽  
Asset Prices ◽  
The Current Account

scholarly journals Asset Prices, Exchange Rates and the Current Account

2007 ◽  
Author(s):  
Marcel Fratzscher ◽  
Lucio Sarno ◽  
Luciana Juvenal
Keyword(s):  
Exchange Rates ◽  
Current Account ◽  
Asset Prices ◽  
The Current Account

scholarly journals Asset Prices, Exchange Rates and the Current Account

2009 ◽  
Author(s):  
Marcel Fratzscher ◽  
Luciana Juvenal ◽  
Lucio Sarno
Keyword(s):  
Exchange Rates ◽  
Current Account ◽  
Asset Prices ◽  
The Current Account

scholarly journals Asset prices, exchange rates and the current account

2010 ◽  
Vol 54 (5) ◽  
pp. 643-658 ◽  
Author(s):  
Marcel Fratzscher ◽  
Luciana Juvenal ◽  
Lucio Sarno
Keyword(s):  
Exchange Rates ◽  
Current Account ◽  
Asset Prices ◽  
The Current Account

scholarly journals Asset Prices, Real Exchange Rate and Current Account Fluctuations: Some Structural VAR Evidence for Thailand

2017 ◽  
Vol 7 (2) ◽  
pp. 163
Author(s):  
Komain Jiranyakul
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Stock Prices ◽  
Asset Prices ◽  
Housing Prices ◽  
Structural Var ◽  
Short Run ◽  
The Impact ◽  
The Current Account

This paper is motivated by the controversial issue in the literature pertaining to the impact of real exchange rate, housing prices and stock prices on current account fluctuations. Thailand’s quarterly data are used to examine the impacts of shocks to asset prices and real exchange rate on the current imbalances. The paper employs a structural VAR methodology with short-run restrictions. The estimates of structural VAR models are able to identify interactions among asset prices, real exchange rate, and the current account. The estimated results from two different structural models show that the responses of current account to shocks are different. It can be concluded that shocks to real exchange rate affect current account and that shocks to real housing prices can better explain current account fluctuations than shocks to real stock prices. Based upon the results from this study, policymakers should take into account the importance of shocks to real exchange rate and real housing prices that can affect the current account of the country. 

Sign in / Sign up

Export Citation Format

Share Document