THE ROLE OF TWO INTEREST RATES IN THE INTERTEMPORAL CURRENT ACCOUNT MODEL

Michał Rubaszek

Macroeconomic Dynamics, 2012, vol. 16, issue S2, 176-189

Abstract: We analyze the role of the lending-deposit interest rate spread in the dynamics of the current account in developing countries. For that purpose, we extend the standard perfect-foresight intertemporal model of the current account for the existence of the interest rate spread and simulate the convergence path of developing economies. This model helps explain why in many cases it is optimal for a fast-growing, low-income country to run a balanced current account.

Date: 2012
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