On the empirical evidence of the intertemporal current account model for the euro area countries

Ca’ Zorzi, Michele () and Michał Rubaszek
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Ca’ Zorzi, Michele: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 895, Working Paper Series from European Central Bank

Abstract: In this paper we present a novel approach to the empirical validation of the intertemporal approach to the current account. We develop a calibrated model highlighting the role of consumption smoothing and capital accumulation in the economic convergence process. After solving the model, we derive the theoretical values for the euro area countries’ current account, testing to what extent they match reality. The model explains most of the dispersion in the current account and saving ratio, though cannot equally well capture differences in the investment ratios. The conclusion that we draw is that consumption smoothing, based on expectations of economic convergence, is driving the current account of the euro area countries over medium-term horizons. Capital accumulation appears to play a less pronounced role. JEL Classification: D91, F36, F41.

Keywords: General equilibrium models; intertemporal optimisation; current account; euro area. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-lab and nep-opm
Date: Written 2008-05
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