Are There Thresholds of Current Account Adjustment in the G7?

60 Pages Posted: 26 Oct 2012 Last revised: 27 Apr 2022

See all articles by Richard Clarida

Richard Clarida

Columbia University - Graduate School of Arts and Sciences - Department of Eco; National Bureau of Economic Research (NBER)

Manuela Goretti

International Monetary Fund (IMF)

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR); Brookings Institution

Date Written: May 2006

Abstract

We find evidence of threshold behavior in current account adjustment for the G7 countries, such that the dynamics of adjustment towards equilibrium depend upon whether the current-account/ net-output ratio breaches estimated, country specific current account surplus or deficit thresholds. Both the speeds of adjustment and the size of the thresholds are found to differ significantly across countries. In addition, we also find evidence of shifts in means and variances of exchange rate changes, stock returns, and interest differentials that coincide with the current account adjustment regimes identified by the model.

Suggested Citation

Clarida, Richard H. and Goretti, Manuela and Taylor, Mark P., Are There Thresholds of Current Account Adjustment in the G7? (May 2006). NBER Working Paper No. w12193, Available at SSRN: https://ssrn.com/abstract=2167185

Richard H. Clarida (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Eco ( email )

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National Bureau of Economic Research (NBER)

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Manuela Goretti

International Monetary Fund (IMF) ( email )

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Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School ( email )

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Centre for Economic Policy Research (CEPR)

London
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Brookings Institution ( email )

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