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The Role of Macroeconomic Stability in Current Account Balances

Year 2022, Volume: 72 Issue: 2, 569 - 597, 18.01.2023
https://doi.org/10.26650/ISTJECON2022-1172316

Abstract

This study aims to find out the role of macroeconomic stability in current account balances. The analysis is completed for the period between 1980 and 2016 for 97 countries. The macroeconomic stability is represented by an index created with the countries’ inflation rate (CPI), growth rate, unemployment rate, and fiscal balance data. It is found that macroeconomic stability is one of the important determinants of current account balances like institutional quality and financial development. It has negative and statistically significant relationships with current account balances for four different country groups: developing countries, all countries except industrial, all countries except industrial and African countries, and all countries. Results show that macroeconomic stability is a crucial determinant for developing countries rather than high-income countries.

References

  • Altayligil, Y.B. & ^etrez, M. (2020) Macroeconomic, institutional, and financial determinants of current account balances: a panel data assessment. Journal of Economic Structures 9, 49. google scholar
  • Aristovnik, A. (2006). The Determinants and Excessiveness of Current Account Deficits in Eastern Europe and the Former Soviet Union. William Davidson Institute, 827. google scholar
  • Bilan, Y., Raisiene, A. G., Vasilyeva, T., Lyulyov, O. & Pimonenko, T., (2019). Public Governance efficiency and macroeconomic stability: examining convergence of social and political determinants. Viesoji Politika ir Administravimas; Vilnius Vol. 18, Iss. 2, 241-255. google scholar
  • Bernanke, B. (2005). The Global Saving Glut and the U.S. Current Account Deficit. Remarks by Governor Ben S. Bernanke, at the Homer Jones Lecture, St. Louis, Missouri. google scholar
  • Calderon, C., Chong A. & Loayza N. (2002). Determination of Current Account Deficits in Developing Countries. World Bank Policy Research Working Paper, No. 2398. google scholar
  • Chan, M.L., Hou, K., Li, X. & Mountain, D.C. (2014). Foreign direct investment and its determinants: a regional panel causality analysis, The Quarterly Review of Economics and Finance, Vol. 54 No. 4, pp. 579-589. google scholar
  • Cheung, C., Furceri D. & Rusticelli, E. (2013). Structural and Cyclical Factors behind Current Account Balances. Review of International Economics 21: 923-944. google scholar
  • Chinn, M. & Prasad, E. (2003). Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration. Journal of International Economics, 59: 47-76. google scholar
  • Chinn, M. & Ito H. (2007). Current Account Balances, Financial Development and Institutions: Assaying the World Saving Glut. Journal of International Money and Finance, Elsevier, vol. 26(4), p. 546-569. google scholar
  • Chinn M., Eichengreen B. & Ito H. (2014). A forensic analysis of global imbalances, Oxford Economic Papers, Volume 66, Issue 2, Pages 465-490. google scholar
  • Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance 20: 249-272. google scholar
  • Debelle, G. & Hamid, F. (1996). What determines the Current Account. IMF Research Department, WP/96/58. google scholar
  • Eicker, F. (1967). Limit Theorems for Regression with Unequal and Dependent Errors. Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, 59-82. Berkeley, Ca: University of California Press. google scholar
  • Freund, C. L. (2000). Current Account Adjustment in Industrialized Countries. Board of Governors of the Federal Reserve System International Finance Discussion Papers, Number 692. google scholar
  • Gormley, T. A. & Matsa D.A. (2014). Common Errors: How to (and not to) Control for Unobserved Heterogeneity. The Review of Financial Studies, Volume 27, Issue 2, Pages 617-661. google scholar
  • Gruber, J. & Kamin, S. (2005). Explaining the Global Pattern of Current Account Imbalances. Board of Governors of the Federal Reserve System International Finance Discussion Papers, Number 846. google scholar
  • Gruber, J. & Kamin, S. (2009). Do differences in financial development explain the global pattern of current account imbalances. Review of International Economics, vol. 17, No. 4, 667-688. google scholar
  • Harberger, A. C. (1950). Currency depreciation, income, and the balance of trade. Journal of Political Economy, vol. 58, no. 1, pp. 47-60. google scholar
  • Huber P. J. (1967). The Behavior of Maximum Likelihood Estimates Under Non-Standard Conditions. Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, 1, 221223. Berkeley, Ca: University of California Press. google scholar
  • IMF World Economic Outlook Report (2019). google scholar
  • Iqbal, N. & Nawaz, S. (2009). Investment, Inflation and Economic Growth Nexus. Pakistan Development Review, Vol. 48(4). google scholar
  • Ames B., Brown W., Devarajan, S. & Izquierdo A. (2001). Macroeconomic Policy and Poverty Reduction. Pamphlet prepared by the International Monetary Fund and the World Bank. google scholar
  • King, D. & Ma, Y (2001). Fiscal Decentralization, Central Bank Independence, and Inflation. Economic Letters, Vol. 72, pp. 95-98. google scholar
  • Kok, R. & Ersoy B.A. (2009). Analyses of FDI determinants in developing countries. International Journal of Social Economics, Vol. 36 Nos 1/2, pp. 105-123. google scholar
  • Kolodko, G. (1993). Stabilisation, recession, and growth in a post-socialist economy. Springer Economic Policy in Transitional Economies Vol. 3, No.1. google scholar
  • Laursen S. & Metzler, L. A. (1950). Flexible exchange rates and the theory of employment. The Review of Economics and Statistics, vol. 32, no. 4, p. 281. google scholar
  • Legg, A., Prasad N. & Robinson, T. (2007). Global Imbalances and the Global Saving Glut- A Panel Data Assessment. Economic Research Department Reserve Bank of Australia, Research Discussion Paper 2007-11. google scholar
  • Lucas, R. E. (1988). On the Mechanism of Economic Development. Journal of Monetary Economics, 22: 3- 22. google scholar
  • Martinez-Vazquez, J. & Macnab, R. M. (2006). Fiscal Decentralization, Macro stability and Growth. Hacienda Pública Española / Revista de Economía Pública, Vol. 179(4), pp.25-49. google scholar
  • Neyapti, B. (2004). Fiscal decentralization, central bank independence and inflation: a panel investigation. Economics Letters, Vol. 82(2), pp. 227-230. google scholar
  • Onyeiwu, S. & Shrestha, H. (2004). Determinants of foreign direct investment in Africa. Journal of Developing Societies, Vol. 20 Nos 1/2, pp. 89-106. google scholar
  • Pesaran, M.H. (2004). General Diagnostic Tests for Cross Section Dependence in Panels. CESifo Working Paper, 1229: 1-40. google scholar
  • Pesaran, M.H. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Econometrics, 22(2): 265-312. google scholar
  • Ranjan V. & Gaurav A. (2011). FDI Inflow Determinants in BRIC countries: A Panel Data Analysis. International Business Research Vol. 4, No. 4. google scholar
  • Shah, A. (2006). Fiscal decentralization and macroeconomic management. International Tax Public Finance, vol. 13, pp. 437-462. google scholar
  • Shah, M. H., (2016). The effect of macroeconomic stability on inward FDI in African developing countries. International Journal of Business Studies Review. 1(1), 1-11. google scholar
  • Thornton, J. (2007). Further evidence on revenue decentralization and inflation. Economics Letters, Vol. 95(1), pp. 140-145. google scholar
  • Treisman, D. (2000). Decentralization and inflation: Commitment, collective action, or continuity. American Political Science Review, Vol. 94(4), pp. 837-857. google scholar
  • White, H. (1980). A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity. Econometrica, 48,817-838. google scholar
  • Wooldridge, J. M. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press. google scholar
  • Zaman C. & Drcelic B., (2009). Macro-stabilization issues in the Serbian Economy: Methodological Evaluation. Retrieved from http://ssrn.com/abstract=1521660. google scholar

Makroekonomik İstikrarın Cari İşlemler Dengesindeki Rolü

Year 2022, Volume: 72 Issue: 2, 569 - 597, 18.01.2023
https://doi.org/10.26650/ISTJECON2022-1172316

Abstract

Bu çalışma literatürde ilk kez makroekonomik istikrarın cari işlemler dengesindeki rolünün ortaya çıkarılmasını amaçlamıştır. Analiz, 97 ülke için 1980-2016 dönemi için yapılmıştır. Makroekonomik istikrar, tüm ülkelerin enflasyon oranı (TÜFE), büyüme oranı, tüm ülkelerin işsizlik oranı ve mali denge verileriyle oluşturulan bir endeks ile temsil edilmiştir. Makroekonomik istikrarın, kurumsal kalite ve finansal gelişme gibi cari işlemler dengesinin önemli belirleyicilerinden biri olduğu tespit edilmiştir. Dört farklı ülke grubu; gelişmekte olan ülkeler, sanayileşme dışındaki tüm ülkeler, sanayileşmiş ve Afrika ülkeleri hariç tüm ülkeler ve son olarak ta tüm ülkeler olmak üzere dört farklı ülke grubu için makroekonomik istikrar endeksinin, cari işlemler dengesi ile negatif ve istatistiksel olarak anlamlı bir ilişkiye sahip olduğu gösterilmiştir. Sonuçlar, makroekonomik istikrarın, özellikle yüksek gelirli ülkelerden ziyade gelişmekte olan ülkeler için daha önemli bir belirleyici olduğunu göstermektedir.

References

  • Altayligil, Y.B. & ^etrez, M. (2020) Macroeconomic, institutional, and financial determinants of current account balances: a panel data assessment. Journal of Economic Structures 9, 49. google scholar
  • Aristovnik, A. (2006). The Determinants and Excessiveness of Current Account Deficits in Eastern Europe and the Former Soviet Union. William Davidson Institute, 827. google scholar
  • Bilan, Y., Raisiene, A. G., Vasilyeva, T., Lyulyov, O. & Pimonenko, T., (2019). Public Governance efficiency and macroeconomic stability: examining convergence of social and political determinants. Viesoji Politika ir Administravimas; Vilnius Vol. 18, Iss. 2, 241-255. google scholar
  • Bernanke, B. (2005). The Global Saving Glut and the U.S. Current Account Deficit. Remarks by Governor Ben S. Bernanke, at the Homer Jones Lecture, St. Louis, Missouri. google scholar
  • Calderon, C., Chong A. & Loayza N. (2002). Determination of Current Account Deficits in Developing Countries. World Bank Policy Research Working Paper, No. 2398. google scholar
  • Chan, M.L., Hou, K., Li, X. & Mountain, D.C. (2014). Foreign direct investment and its determinants: a regional panel causality analysis, The Quarterly Review of Economics and Finance, Vol. 54 No. 4, pp. 579-589. google scholar
  • Cheung, C., Furceri D. & Rusticelli, E. (2013). Structural and Cyclical Factors behind Current Account Balances. Review of International Economics 21: 923-944. google scholar
  • Chinn, M. & Prasad, E. (2003). Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration. Journal of International Economics, 59: 47-76. google scholar
  • Chinn, M. & Ito H. (2007). Current Account Balances, Financial Development and Institutions: Assaying the World Saving Glut. Journal of International Money and Finance, Elsevier, vol. 26(4), p. 546-569. google scholar
  • Chinn M., Eichengreen B. & Ito H. (2014). A forensic analysis of global imbalances, Oxford Economic Papers, Volume 66, Issue 2, Pages 465-490. google scholar
  • Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance 20: 249-272. google scholar
  • Debelle, G. & Hamid, F. (1996). What determines the Current Account. IMF Research Department, WP/96/58. google scholar
  • Eicker, F. (1967). Limit Theorems for Regression with Unequal and Dependent Errors. Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, 59-82. Berkeley, Ca: University of California Press. google scholar
  • Freund, C. L. (2000). Current Account Adjustment in Industrialized Countries. Board of Governors of the Federal Reserve System International Finance Discussion Papers, Number 692. google scholar
  • Gormley, T. A. & Matsa D.A. (2014). Common Errors: How to (and not to) Control for Unobserved Heterogeneity. The Review of Financial Studies, Volume 27, Issue 2, Pages 617-661. google scholar
  • Gruber, J. & Kamin, S. (2005). Explaining the Global Pattern of Current Account Imbalances. Board of Governors of the Federal Reserve System International Finance Discussion Papers, Number 846. google scholar
  • Gruber, J. & Kamin, S. (2009). Do differences in financial development explain the global pattern of current account imbalances. Review of International Economics, vol. 17, No. 4, 667-688. google scholar
  • Harberger, A. C. (1950). Currency depreciation, income, and the balance of trade. Journal of Political Economy, vol. 58, no. 1, pp. 47-60. google scholar
  • Huber P. J. (1967). The Behavior of Maximum Likelihood Estimates Under Non-Standard Conditions. Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, 1, 221223. Berkeley, Ca: University of California Press. google scholar
  • IMF World Economic Outlook Report (2019). google scholar
  • Iqbal, N. & Nawaz, S. (2009). Investment, Inflation and Economic Growth Nexus. Pakistan Development Review, Vol. 48(4). google scholar
  • Ames B., Brown W., Devarajan, S. & Izquierdo A. (2001). Macroeconomic Policy and Poverty Reduction. Pamphlet prepared by the International Monetary Fund and the World Bank. google scholar
  • King, D. & Ma, Y (2001). Fiscal Decentralization, Central Bank Independence, and Inflation. Economic Letters, Vol. 72, pp. 95-98. google scholar
  • Kok, R. & Ersoy B.A. (2009). Analyses of FDI determinants in developing countries. International Journal of Social Economics, Vol. 36 Nos 1/2, pp. 105-123. google scholar
  • Kolodko, G. (1993). Stabilisation, recession, and growth in a post-socialist economy. Springer Economic Policy in Transitional Economies Vol. 3, No.1. google scholar
  • Laursen S. & Metzler, L. A. (1950). Flexible exchange rates and the theory of employment. The Review of Economics and Statistics, vol. 32, no. 4, p. 281. google scholar
  • Legg, A., Prasad N. & Robinson, T. (2007). Global Imbalances and the Global Saving Glut- A Panel Data Assessment. Economic Research Department Reserve Bank of Australia, Research Discussion Paper 2007-11. google scholar
  • Lucas, R. E. (1988). On the Mechanism of Economic Development. Journal of Monetary Economics, 22: 3- 22. google scholar
  • Martinez-Vazquez, J. & Macnab, R. M. (2006). Fiscal Decentralization, Macro stability and Growth. Hacienda Pública Española / Revista de Economía Pública, Vol. 179(4), pp.25-49. google scholar
  • Neyapti, B. (2004). Fiscal decentralization, central bank independence and inflation: a panel investigation. Economics Letters, Vol. 82(2), pp. 227-230. google scholar
  • Onyeiwu, S. & Shrestha, H. (2004). Determinants of foreign direct investment in Africa. Journal of Developing Societies, Vol. 20 Nos 1/2, pp. 89-106. google scholar
  • Pesaran, M.H. (2004). General Diagnostic Tests for Cross Section Dependence in Panels. CESifo Working Paper, 1229: 1-40. google scholar
  • Pesaran, M.H. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Econometrics, 22(2): 265-312. google scholar
  • Ranjan V. & Gaurav A. (2011). FDI Inflow Determinants in BRIC countries: A Panel Data Analysis. International Business Research Vol. 4, No. 4. google scholar
  • Shah, A. (2006). Fiscal decentralization and macroeconomic management. International Tax Public Finance, vol. 13, pp. 437-462. google scholar
  • Shah, M. H., (2016). The effect of macroeconomic stability on inward FDI in African developing countries. International Journal of Business Studies Review. 1(1), 1-11. google scholar
  • Thornton, J. (2007). Further evidence on revenue decentralization and inflation. Economics Letters, Vol. 95(1), pp. 140-145. google scholar
  • Treisman, D. (2000). Decentralization and inflation: Commitment, collective action, or continuity. American Political Science Review, Vol. 94(4), pp. 837-857. google scholar
  • White, H. (1980). A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity. Econometrica, 48,817-838. google scholar
  • Wooldridge, J. M. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press. google scholar
  • Zaman C. & Drcelic B., (2009). Macro-stabilization issues in the Serbian Economy: Methodological Evaluation. Retrieved from http://ssrn.com/abstract=1521660. google scholar
There are 41 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Article
Authors

Murat Çetrez 0000-0001-9567-7644

Yasin Barış Altaylıgil 0000-0002-7007-8431

Publication Date January 18, 2023
Submission Date September 7, 2022
Published in Issue Year 2022 Volume: 72 Issue: 2

Cite

APA Çetrez, M., & Altaylıgil, Y. . B. (2023). The Role of Macroeconomic Stability in Current Account Balances. İstanbul İktisat Dergisi, 72(2), 569-597. https://doi.org/10.26650/ISTJECON2022-1172316
AMA Çetrez M, Altaylıgil YB. The Role of Macroeconomic Stability in Current Account Balances. İstanbul İktisat Dergisi. January 2023;72(2):569-597. doi:10.26650/ISTJECON2022-1172316
Chicago Çetrez, Murat, and Yasin Barış Altaylıgil. “The Role of Macroeconomic Stability in Current Account Balances”. İstanbul İktisat Dergisi 72, no. 2 (January 2023): 569-97. https://doi.org/10.26650/ISTJECON2022-1172316.
EndNote Çetrez M, Altaylıgil YB (January 1, 2023) The Role of Macroeconomic Stability in Current Account Balances. İstanbul İktisat Dergisi 72 2 569–597.
IEEE M. Çetrez and Y. . B. Altaylıgil, “The Role of Macroeconomic Stability in Current Account Balances”, İstanbul İktisat Dergisi, vol. 72, no. 2, pp. 569–597, 2023, doi: 10.26650/ISTJECON2022-1172316.
ISNAD Çetrez, Murat - Altaylıgil, Yasin Barış. “The Role of Macroeconomic Stability in Current Account Balances”. İstanbul İktisat Dergisi 72/2 (January 2023), 569-597. https://doi.org/10.26650/ISTJECON2022-1172316.
JAMA Çetrez M, Altaylıgil YB. The Role of Macroeconomic Stability in Current Account Balances. İstanbul İktisat Dergisi. 2023;72:569–597.
MLA Çetrez, Murat and Yasin Barış Altaylıgil. “The Role of Macroeconomic Stability in Current Account Balances”. İstanbul İktisat Dergisi, vol. 72, no. 2, 2023, pp. 569-97, doi:10.26650/ISTJECON2022-1172316.
Vancouver Çetrez M, Altaylıgil YB. The Role of Macroeconomic Stability in Current Account Balances. İstanbul İktisat Dergisi. 2023;72(2):569-97.