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Cross-country evidence on the relation between stock prices and the current account

Tim Berg ()

Applied Economics, 2013, vol. 45, issue 16, 2267-2277

Abstract: This article explores the relation between stock prices and the current account for 17 Organization for Economic Co-operation and Development (OECD) countries in 1980--2007. A panel Vector Autoregressive (VAR) model is used to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have little effects, shocks to stock prices and exchange rates have sizeable effects. A 10% contraction in stock prices improves the current account by 0.3% after 2 years. Hence a channel -- in addition to the traditional exchange rate channel -- is found through which external balance for an OECD country with a current account imbalance can be restored.

Date: 2013
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Related works:
Working Paper: Cross-country evidence on the relation between stock prices and the current account (2010) Downloads
Working Paper: Cross-country evidence on the relation between equity prices and the current account (2009) Downloads
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DOI: 10.1080/00036846.2012.659349

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