The Behaviour Of The Current Account Balances Of ASEAN-5 Members
Current account conveys information about the actions and expectations of all market participants in an open economy; it reflects the stance of macroeconomic policies and provides information about the behaviour of economic agents. Therefore, the needs for greater understanding about the behaviou...
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| Format: | Thesis |
| Language: | English |
| Published: |
2007
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/5025/1/FEP%202007%207%20IR.pdf |
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| Summary: | Current account conveys information about the actions and expectations of all
market participants in an open economy; it reflects the stance of macroeconomic
policies and provides information about the behaviour of economic agents.
Therefore, the needs for greater understanding about the behaviour of the current
account are becoming increasingly vital, as institutional structures dealing with
macroeconomic policies cannot simply be copied from one country to another.
This dissertation empirically examined the movement of the current account
balances for the ASEAN-5 countries, namely Indonesia, Malaysia, Philippines,
Singapore and Thailand, under four main issues: the intertemporal optimization
approach to the current account, the twin-deficits hypothesis, the relationship
between current account and investment, and the temporary and permanent shocks of the current account balance and the real exchange rate. Several
important results emerged from this study. First, the present value model
effectively captures the magnitudes and directions of the current account balances
for four out of five ASEAN-5 countries over the period of the study, thus favored
the proposition that the countries’ expectations about future movement in net
output are reflected by today’s current account. Second, the data supported the
twin deficit hypothesis for the ASEAN-5 countries except Indonesia, and that the
budget deficit plays a weakly exogenous role with respect to the current account
deficit. This is an important finding because it implies that fiscal policy is
effective in influencing current account balance. Third, our finding indicated that
the ASEAN-5 have relied on domestic savings to finance their investment, thus
agreeing with the proposition that developing countries only participate partially
in the world’s capital market, as a result of the lack of sophisticated domestic
capital market in the developing countries. Forth, our finding suggested that the
temporary shock depreciates the currency so much that the current account
improves over the short term, while over the longer term, the current account
effect fades away as the exchange rates stabilize. |
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