The Current Account and the Interest Differential In Canada

Michel Normandin () and Martin Boileau ()

No 04-09, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: For post-1975 Canadian data, we document the joint behavior of output, the current account, and the interest differential at the business cycle frequency. We also interpret the joint behavior using a simple small open economy model. Our simple model assumes that agents have access to world international financial markets, but face country-specific interest rate on their holdings of world assets. The interest differential depends negatively on the country’s net foreign asset position. We find that our simple model matches the Canadian data remarkably well.

Keywords: International Real Business Cycle; Small Open Economy; Habit Formation. (search for similar items in EconPapers)
JEL-codes: E32 F41 G15 (search for similar items in EconPapers)
Date: 2004-11
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Working Paper: The Current Account and the Interest Differential in Canada (2004)
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