Capital Mobility and Current Account Imbalance: Nonlinear Threshold Vector Autoregression Approach

Yuan-Ming Lee and Kuan-Min Wang

International Interactions, 2012, vol. 38, issue 2, 182-217

Abstract: In this study, we utilize the growth rate of gross domestic product as the threshold variable to construct two nonlinear threshold vector autoregression models to re-examine the findings in Yan (2007:23) that “current account imbalance causes capital mobility in developed countries; capital mobility causes current account imbalance in emerging countries.” The nonlinear causality test shows that the findings of Yan (2007) can exist only in certain regimes and the primary factor that affects the causality between current account and financial account (and its components of foreign direct investment, portfolio investment, and other investment) is the asymmetry caused by the business cycle.

Date: 2012
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DOI: 10.1080/03050629.2012.657946

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