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The evolution of Cambodian current account: A dynamic general equilibrium analysis

Veasna Kheng and Lei Pan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops and estimates a small open economy real-business cycle model to study the dynamics of Cambodian current account. Differing from previous studies, we include net unilateral transfers and net foreign direct investment (FDI) as additional sources of macroeconomic fluctuations. We show that these two sources explain the variations in current account better than the shocks that are widely identified in the literature (i.e. productivity and interest rate). Our model captures Cambodia’s saving-and investment behaviour and matches well the evolution of its current account. Specifically, the measurement error is nearly 4% and the correlation between data and model is around 0.93. As a step further, using our well-fitted model, we predict the future trend of Cambodian current account in the context of negative shocks in productivity, remittance, FDI and COVID-19 pandemic.

Keywords: real business cycle; current account; FDI; unilateral transfer; COVID-19 (search for similar items in EconPapers)
JEL-codes: F3 F41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-int, nep-mac, nep-opm and nep-sea
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