Dynamics of the Current Account and Interest Differentials

Michel Normandin () and Martin Boileau ()

No 03-05, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: In contrast to earlier work, we study the relation between the current account and interest rate differentials. To do so, we document the relation for international data. We then interpret this relation from a two-country, dynamic, general equilibrium environment. We finally confront the relation predicted by the environment to the relation observed in the data. We find that the environment correctly predicts that the current account is countercyclical; that the interest differential is procyclical; and that the current account is negatively correlated with current and future interest differentials, but positively correlated with past interest differentials.

Keywords: International; Real; Business; Cycle (search for similar items in EconPapers)
JEL-codes: F32 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2003-10
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Related works:
Working Paper: Dynamics of the Current Account and Interest Differentials (2003)
Journal Article: Dynamics of the current account and interest differentials (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:iea:carech:0305

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