Productivity shocks and the current account: An alternative perspective of capital market integration

Jörg Decressin and Piti Disyatat

Journal of International Money and Finance, 2008, vol. 27, issue 6, 897-914

Abstract: This paper presents an analysis of capital market integration grounded in the intertemporal model of the current account. The model is extended to encompass liquidity constraints and fitted to data for euro-area countries and Italian and Canadian regions. With respect to capital mobility, regions within countries serve as a natural benchmark for the euro-area currency union. The empirical results are generally consistent with the model with respect to the responses of investment and the current account to productivity shocks, and also suggest that liquidity constraints at the country level do not add significantly to constraints at the regional level.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:27:y:2008:i:6:p:897-914

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