Current account dynamics under information rigidity and imperfect capital mobility

Akihisa Shibata, Mototsugu Shintani and Takayuki Tsuruga

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

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)
Pages: 49 pages
Date: 2018-11
New Economics Papers: this item is included in nep-mac, nep-opm and nep-ore
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https://cama.crawford.anu.edu.au/sites/default/fil ... shintani_tsuruga.pdf (application/pdf)

Related works:
Journal Article: Current account dynamics under information rigidity and imperfect capital mobility (2019)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-56

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