The Role of Stock Markets in Current Account Dynamics: A Time Series Approach

 
Author/Editor: Mercereau, Benoît
 
Publication Date: March 01, 2004
 
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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: This paper develops a simple model to study the impact of stock markets on the current account. A closed-form solution for the current account is derived from the optimal portfolio and consumption/saving choices of a representative agent. Formally, the model can be seen as a stock market-augmented version of the "fundamental equation of the current account" popularized by Jeffrey Sachs. It appears to shed light on recent developments in the U.S. current account deficit. The model also shows how the current account may help predict future stock market performance and/or endowment streams.
 
Series: Working Paper No. 04/50
Subject(s): Current account | United States | Stock markets | Economic models

Author's Keyword(s): Current account | stock markets
 
English
Publication Date: March 01, 2004
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0502004 Pages: 30
Price:
US$15.00 (Academic Rate:
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