Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153448
Authors: 
Fratzscher, Marcel
Straub, Roland
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1014
Abstract: 
The paper analyses the effect of equity price shocks on current account positions for the G7 industrialized countries in 1974-2007. It uses a Bayesian VAR with sign restrictions for the identification of asset price shocks and to test empirically for their effect on current accounts. Such shocks are found to exert a sizeable effect, with a 10 percent equity price increase for instance in the United States relative to the rest of the world worsening the US trade balance by 0.9 percentage points after 16 quarters. However, the response of the trade balance to equity price shocks varies substantially across countries. The evidence suggests that the channels accounting for this heterogeneity function both through wealth effects on private consumption and to some extent through the real exchange rate of countries.
Subjects: 
asset prices
Bayesian VAR
current account
financial markets
Identification
industrialized economies
JEL: 
E2
F32
F40
G1
Document Type: 
Working Paper

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