Current account dynamics under information rigidity and imperfect capital mobility

Akihisa Shibata, Mototsugu Shintani and Takayuki Tsuruga

Journal of International Money and Finance, 2019, vol. 92, issue C, 153-176

Abstract: The current account in developed countries is highly persistent and volatile in comparison to their output growth. The standard intertemporal current account model with rational expectations (RE) fails to explain the observed current account and consumption dynamics. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for the consumption dynamics, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility explains both the current account and consumption, provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered.

Keywords: Capital mobility; Imperfect information; Inattentive consumers; Permanent income hypothesis (search for similar items in EconPapers)
JEL-codes: E21 F21 F32 F41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560618302742
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility (2018)
Working Paper: Current account dynamics under information rigidity and imperfect capital mobility (2018)
Working Paper: Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility (2018)
Working Paper: Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:92:y:2019:i:c:p:153-176

DOI: 10.1016/j.jimonfin.2018.12.001

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().