Global versus Country-Specific Productivity Shocks and the Current Account

Citation:

Glick, Reuven, and Kenneth Rogoff. 1995. “Global versus Country-Specific Productivity Shocks and the Current Account.” Journal of Monetary Economics 35: 159-92.
Article1.61 MB

Abstract:

This paper develops an analytically tractable empirical model of investment and the current account, and applies it to data from the G-7 countries. This distinction between global and country-specific shock turns out to be quite important for explaining current account behavior; overall the model performs surprisingly well. One apparent puzzle, however, is that the current account responds by much less than investment to country-specific shocks, despite the near unit root behavior of these shocks. We show theoretically that this apparent anomaly can be explained if the shocks have very slow mean reversion.

Notes:

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