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

March 1, 2004

Preview Citation

Format: Chicago

Benoît Mercereau. The Role of Stock Markets in Current Account Dynamics: a Time-Series Approach, (USA: International Monetary Fund, 2004) accessed September 19, 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

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.

Subject: Current account, Current account deficits, Futures markets, Stock markets, Stocks

Keywords: Stock market boom, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/050
Stock No:

WPIEA0502004
ISBN:

9781451847000
ISSN:

1018-5941

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