Current Account Adjustment: Some New Theory and Evidence

Jiandong Ju and Shang-Jin Wei

No 13388, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper aims to provide a theory of current account adjustment that generalizes the textbook version of the intertemporal approach to current account and places domestic labor market institutions at the center stage. In general, in response to a shock, an economy adjusts through a combination of a change in the composition of goods trade (i.e., intra-temporal trade channel) and a change in the current account (i.e., intertemporal trade channel). The more rigid the labor market, the slower the speed of adjustment of the current account towards its long-run equilibrium. Three pieces of evidence are provided that are consistent with the theory.

JEL-codes: E00 F3 F4 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-cba and nep-int
Note: IFM ITI
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Citations: View citations in EconPapers (31)

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Working Paper: Current Account Adjustment: Some New Theory and Evidence (2008)
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