The current account as a dynamic portfolio choice problem

Tatiana Didier () and Alexandre Lowenkron

No 4861, Policy Research Working Paper Series from The World Bank

Abstract: The current account can be understood as the outcome of investment decisions made by domestic and foreign investors. These decisions can be decomposed into a portfolio rebalancing and a portfolio growth component. This paper provides empirical evidence of the importance of portfolio rebalancing for the dynamics of the current account. The authors evaluate the predictions of a partial-equilibrium model of the current account with dynamic portfolio choices, in which portfolio rebalancing is driven by changes in investment opportunities. Using data for the United States and Japan, the authors find evidence supporting innovations in investment opportunities as an important mechanism to explain international capital flows.

Keywords: Debt Markets; Emerging Markets; Economic Theory&Research; Currencies and Exchange Rates; Investment and Investment Climate (search for similar items in EconPapers)
Date: 2009-03-01
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (2)

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Journal Article: The current account as a dynamic portfolio choice problem (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:4861

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