Abstract
Expanding current account balances (both surpluses and deficits) prior to the global economic crisis dominated academic and policy debates over the past decade. Understanding the role of credit growth on the current account balance has become a priority particularly with the rebalancing experience in the post-crisis period. In this study, we adopt a comprehensive framework by constructing an empirical model that accommodates asymmetric adjustments of current account balance to the changes in the total and household credit growth. We consider the asymmetric effects in two dimensions. When we discriminate between credit expansion and contraction episodes, our results show that credit growth has a stronger negative impact on the current account balance during credit expansion periods. Furthermore, negative effects of total and household credit growth on the current account balance are more pronounced during current account deficit episodes.
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Notes
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Demographic factors, fiscal balances, economic growth prospects and net foreign asset positions are major structural factors which influence the CA balance. See Philips et al. (2013) for a detailed discussion.
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Prior to the global economic crisis, global imbalances typically referred to the persistent, large CA deficit in the US matched by CA surpluses in the rest of the world, especially China.
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Using the models with total credit growth and growth rates of the components of credit stock, we conduct Breusch-Pagan Lagrange multiplier tests and Hausman tests. Our results support the fixed effects specification for both empirical models. We also include time effects which are found to be jointly significant for both models.
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Ekinci, M.F., Omay, T. (2019). Asymmetric Effects of Credit Growth on the Current Account Balance: Panel Data Evidence. In: Ozatac, N., Gokmenoglu, K. (eds) Global Issues in Banking and Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-30387-7_2
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DOI: https://doi.org/10.1007/978-3-030-30387-7_2
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