Endogenous current account balances in a world CGE model with international financial assets

André Lemelin, Véronique Robichaud and Bernard Decaluwe ()

Economic Modelling, 2013, vol. 32, issue C, 146-160

Abstract: This paper presents an applied computable general equilibrium world model with financial assets and endogenous current account, and capital and financial account balances. The capital and financial account equilibrium conditions, rather than exogenous rules, constrain the current account balance. International capital flows which balance the current account are constrained by supply-and-demand equilibrium conditions on the market for international debt securities, under portfolio managers' optimizing behavior. The asset–liability structure of the financial portfolio is endogenous, and it is possible for a country-agent to have negative net financial assets. In simulations, the interaction of portfolio choices with trade supply and demand behavior leads to endogenous sign reversals in some current account balances, and it results in a different allocation of investment among regions, compared to a model with exogenously determined current account balances. In the reference scenario, this allocation generates growth that is about the same globally, but differently distributed between regions.

Keywords: World CGE model; International investment position; Current account balances; Capital and financial account (search for similar items in EconPapers)
JEL-codes: C68 D58 F17 F37 G11 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:32:y:2013:i:c:p:146-160

DOI: 10.1016/j.econmod.2013.01.046

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