Current Account Dynamics under Information Rigidity and Imperfect Capital Mobility

Akihisa Shibata, Mototsugu Shintani and Takayuki Tsuruga

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: The current account in developed countries is highly persistent and volatile in comparison to output growth. The standard intertemporal current account model with rational expectations (RE) fails to account for the observed current account dynamics together with persistent changes in consumption. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for persistent changes in consumption, 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 and infrequently adjust their consumption. 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 almost fully explains current account dynamics and the persistence of changes in consumption, if high degrees of information rigidity and imperfect capital mobility are taken into account. JEL classifications: E21, F21, F32, F41

Keywords: Capital mobility; Imperfect information; Inattentiveness; Permanent income hypothesis (search for similar items in EconPapers)
Pages: 43 pages
Date: 2018-02
New Economics Papers: this item is included in nep-opm
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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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