IMF Working Papers

Financial Regulation and the Current Account

By Tomasz Wieladek, Sergi Lanau

April 1, 2012

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Tomasz Wieladek, and Sergi Lanau. Financial Regulation and the Current Account, (USA: International Monetary Fund, 2012) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the current account response to a net output shock. The theory is tested with an interacted panel VAR model where the coefficients are allowed to vary with the degree of financial regulation. The current account reaction to an output shock is 60% larger and substantially more persistent in a country with low financial regulation than in one with high financial regulation.

Subject: Asset and liability management, Balance of payments, Capital account, Current account, Current account deficits, Current account imbalances, Liquidity

Keywords: Capital account, Current account, Current account deficits, Current account imbalances, Current account persistence, Current account response, Financial regulation, Global, Impulse response, Liquidity, Liquidity constraint, Panel VAR, Reaction function, Real interest rate, WP

Publication Details

  • Pages:

    51

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/098

  • Stock No:

    WPIEA2012098

  • ISBN:

    9781475502886

  • ISSN:

    1018-5941

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