The Impact of Financial (De)Regulation on Current Account Balances

44 Pages Posted: 18 Sep 2014

See all articles by Enrique Moral-Benito

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Oliver Roehn

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2014

Abstract

Global imbalances and financial market (de)regulation both feature prominently among the potential causes of the global financial crisis, but they have been generally discussed separately. In this paper, we take a different angle and investigate the relationship between financial market regulation and current account balances, an area for which there is limited empirical evidence. We use a panel of countries over the period 1980-2010 and employ a novel empirical approach which allows us to simultaneously account for model uncertainty, current account persistence and unobserved heterogeneity. We find robust evidence that financial market regulations affect current account balances and that different aspects of these regulations can have opposing effects on the current account. In particular we find that lowering bank entry barriers is negatively associated with the current account balance. In contrast, bank privatisation and securities market deregulation tend to raise current account balances. Our results also highlight the need to control for persistence and unobserved heterogeneity. Once we control for these factors, we find robust evidence for a wide range of current account theories in contrast to previous studies.

Keywords: current account, financial markets, financial regulation, Bayesian model averaging, model uncertainty

JEL Classification: C11, F32, F41, G28

Suggested Citation

Moral-Benito, Enrique and Roehn, Oliver, The Impact of Financial (De)Regulation on Current Account Balances (September 15, 2014). Banco de Espana Working Paper No. 1424. Available at SSRN: https://ssrn.com/abstract=2496269 or http://dx.doi.org/10.2139/ssrn.2496269

Enrique Moral-Benito (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Oliver Roehn

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschingerstr. 5
Munich, DE-81679
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
33
Abstract Views
399
PlumX Metrics