## Accounting for Global Dispersion of Current Accounts

_IMF Working Papers, December 1, 2009_

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**Canonical URL:** [Accounting for Global Dispersion of Current Accounts](https://www.imf.org/en/publications/wp/issues/2016/12/31/accounting-for-global-dispersion-of-current-accounts-23448)

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## Bibliographic details
- Authors: Jaewoo Lee, Yongsung Chang, Sun-Bin Kim
- Published: December 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451874211.001

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### Summary and main findings
- The paper undertakes a quantitative analysis of the dispersion of current accounts in an open economy version of an 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.
- The easing of trade frictions has almost no impact on the current account dispersion.

### Model and methodology
- Framework: open economy, incomplete insurance model.
- Key features: incorporates market frictions in trade and financial flows; allows limited borrowing.
- Calibration: uses conventional parameter values.
- Equilibrium concept: stochastic stationary equilibrium.

### Quantitative results and interpretation
- Contribution of the model: explains about two-thirds of global current account dispersion under the calibrated setup.
- Role of financial frictions: easing financial frictions accounts for nearly all observed changes in current account dispersion over the past four decades.
- Role of trade frictions: easing trade frictions has almost no impact on current account dispersion according to the model.

### Policy-relevant implications
- Financial market integration and the relaxation of financial frictions are central to understanding changes in global current account dispersion.
- Policies that materially affect financial frictions are likely to have larger effects on cross-country dispersion of current accounts than policies that primarily reduce trade frictions.

_Authors: Jaewoo Lee, Yongsung Chang, Sun-Bin Kim. Publication date: December 1, 2009._

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/accounting-for-global-dispersion-of-current-accounts-23448_