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Mr. Rabah Arezki, Valerie A Ramey, and Liugang Sheng
This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.
International Monetary Fund

Front Matter Page Research Department Contents Summary I. Introduction II. A Dynamic Model of the Current Account III. Current Account Dynamics IV. Conclusions and Policy Implications Appendix: The Reduced-Forms’ Coefficients in Terms of Fundamental Parameters References Tables: 1. Parameter Values 2. Simulations Figures: 1a. Effects of a Productivity Change on the Current Account-GDP Ratio 1b. Effects of a Productivity Change on the Wealth Accumulation-GDP Ratio 2a. Effects of Altering the Productivity-Change Process on

Mr. Enrique G. Mendoza and Ceyhun Bora Durdu

. Baseline Results: State-Contingent and Non-State-Contingent Price Guarantees V. Normative Implications and Sensitivity Analysis A. Normative Implications of the Baseline Simulations B. Sensitivity Analysis VI. Conclusions References Figures 1. Equilbrium in the Asset Market 2. Ergodic Distributions of Domestic Equity and Bond Holdings 3. Consumption and Current Account-GDP Ratio Impact Effects of a Negative Productivity Shock in the Sudden Stop Region of Equity & Bonds 4. Conditional Responses to a Negative, One-Standard-Deviation Productivity

Mr. Gian M Milesi-Ferretti and Mr. Philip R. Lane

Output Adjustment, 2007–2010 5. Crisis Outcomes and Sign of Current Account Gap 6. Pre-crisis Fiscal Variables and Post-Crisis Outcomes 7. Current Account Gap and Capital Flow Adjustment by Exchange Rate Regime 8. Change in Capital Flows and Current Account Gap 9. Current Account Adjustment, External Rinance, and Current Account Gap 10. Euro Periphery: Net Capital Flows Via Central Banks Figures 1. Standard Deviation of Current Account Balances, 1990–2010 2. Change in current account/GDP ratio, 2007–2010 3. Actual Current Account Balance and Fitted