Current accounts, net foreign assets and the implications of cyclical factors
Matthieu Bussiere (),
Georgios Chortareas and
Bank of England working papers from Bank of England
Intertemporal models of the current account suggest that temporary income shocks are fully reflected in a country's net foreign asset position, so that agents invest abroad any savings generated by a positive income shock. On the other hand, a stylised fact in international economics is that there is a disproportionately large share of domestic assets in investors' portfolios. If investment risk is high and diminishing returns are weak, then savings from temporary income shocks may, in fact, be invested according to the existing portfolio composition. This implies that any bias in portfolios persists after a temporary shock. A model is estimated that explicitly allows for the possibility that the impact of initial portfolio allocation, proxied using net foreign assets, may differ, depending on whether shocks are permanent or temporary. The results, from a panel of 18 OECD countries, suggest that initial portfolio allocation affects current account behaviour following temporary, but not permanent, shocks. These results are therefore compatible with the 'new rule'.
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed
Downloads: (external link)
http://www.bankofengland.co.uk/archive/Documents/h ... apers/2003/wp173.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp173.pdf [301 Moved Permanently]--> https://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp173.pdf)
Journal Article: Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:173
Access Statistics for this paper
More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().