Financial Regulation and the Current Account

Author/Editor:

Tomasz Wieladek ; Sergi Lanau

Publication Date:

April 1, 2012

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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 examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the current account response to a net output shock. The theory is tested with an interacted panel VAR model where the coefficients are allowed to vary with the degree of financial regulation. The current account reaction to an output shock is 60% larger and substantially more persistent in a country with low financial regulation than in one with high financial regulation.

Series:

Working Paper No. 2012/098

Subject:

Asset and liability management Balance of payments Capital account Current account Current account deficits Current account imbalances Liquidity

English

Publication Date:

April 1, 2012

ISBN/ISSN:

9781475502886/1018-5941

Stock No:

WPIEA2012098

Pages:

51

Please address any questions about this title to publications@imf.org