What Drives the Current Account in Commodity Exporting Countries? The Cases of Chile and New Zealand

Juan Medina, Anella Munro and Claudio Soto ()

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper uses an open economy DSGE model with a commodity sector and nominal and real rigidities to ask what factors account for current account developments in two small commodity exporting countries. We estimate the model, using Bayesian techniques, on Chilean and on New Zealand data, and investigate the structural factors that explain the behaviour of the two countries’ current accounts. We find that foreign financial conditions, investment-specific shocks, and foreign demand shocks account for the bulk of the variation of the current accounts of the two countries. In the case of New Zealand, fluctuations in commodity export prices have also been important. Counterfactual experiments indicate that (i) a peso denomination of the Chilean external debt would reduce the impact of external shocks on the exchange rate and domestic variables, and the influence of monetary policy on the current account; and (ii) more or less aggressive monetary policy in New Zealand offers little scope for stabilizing the exchange rate and the current account.

Date: 2007-12
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Related works:
Chapter: What Drives the Current Account in Comodity Exporting Countries? The Cases of Chile and New Zealand (2008)
Working Paper: What drives the current account in commodity exporting countries? The cases of Chile and New Zealand (2008)
Journal Article: What Drives the Current Account in Commodity-Exporting Countries? The Cases of Chile and New Zealand (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:446

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