Thousands of Models, One Story: Current Account Imbalances in the Global Economy

34 Pages Posted: 9 Jul 2012

See all articles by Alexander Chudik

Alexander Chudik

Federal Reserve Banks - Federal Reserve Bank of Dallas

Alistair Dieppe

World Bank

Michele Ca' Zorzi

European Central Bank (ECB)

Date Written: May 24, 2012

Abstract

The global financial crisis has led to a revival of the empirical literature on current account imbalances. This paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion. We explore three alternative econometric strategies: examining all models, selecting a few, and combining them all. Out of thousands (or indeed millions) of models a story emerges. Prior to the financial crisis, current account positions of major economies such as the US, UK, Japan and China were not aligned with fundamentals.

Keywords: Current account, global imbalances, panel data, model uncertainty, model combination

JEL Classification: C11, C33, F32, F34, F41, O52

Suggested Citation

Chudik, Alexander and Dieppe, Alistair and Ca' Zorzi, Michele, Thousands of Models, One Story: Current Account Imbalances in the Global Economy (May 24, 2012). ECB Working Paper No. 1441. Available at SSRN: https://ssrn.com/abstract=2065994

Alexander Chudik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Alistair Dieppe

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Michele Ca' Zorzi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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