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Trend shocks and the countercyclical U.S. current account
Author(s) -
Amdur David,
Kiziler Eylem Ersal
Publication year - 2014
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12087
Subject(s) - economics , business cycle , current account , recession , asset (computer security) , productivity , econometrics , estimation , bond , monetary economics , balance of trade , macroeconomics , exchange rate , finance , computer security , management , computer science
From 1960 to 2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that shocks to the trend growth rate of productivity can help explain the countercyclical U.S. current account. Our framework is a two‐country, two‐good business cycle model in which international asset trade is limited to a single, non‐contingent bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model also captures key facts regarding international co‐movement.