Cross-country evidence on the relation between stock prices and the current account

Tim Berg ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the relation between stock prices and the current account for 17 OECD countries in 1980-2007. I use a panel vector autoregression (VAR) to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have little effects, shocks to stock prices and exchange rates have sizeable effects. A 10% contraction in stock prices improves the current account by 0.3% after two years. Hence I find a channel, in addition to the traditional exchange rate channel, through which external balance for an OECD country with a current account imbalance can be restored.

Keywords: current account fluctuations; stock prices; panel VAR (search for similar items in EconPapers)
JEL-codes: C33 E44 F32 (search for similar items in EconPapers)
Date: 2010-05-19
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23976

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