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

36 Pages Posted: 2 Dec 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)

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Date Written: November 28, 2014

Abstract

Both global imbalances and financial market (de-)regulation feature prominently among the potential causes of the global financial crisis, but they have been largely 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 limited empirical evidence exists. We use a panel of countries over the period 1980-2010 and employ a novel empirical approach which allows 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 easing bank entry barriers is negatively associated with the current account balance. In contrast, bank privatization and securities market deregulation tend to raise current account balances. Our results also highlight the importance 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 accounting for model uncertainty.

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 (November 28, 2014). CESifo Working Paper Series No. 5082. Available at SSRN: https://ssrn.com/abstract=2532901

Enrique Moral-Benito

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 (Contact Author)

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

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