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Moral-Benito, Enrique
Röhn, Oliver
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 5082
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.
current account
financial markets
financial regulation
Bayesian Model Averaging
model uncertainty
Document Type: 
Working Paper

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