Current Account Dynamics in OECD Countries and in the New EU Member States: An Intertemporal Approach

Matthieu Bussiere and Marcel Fratzscher

Journal of Economic Integration, 2006, vol. 21, 593-618

Abstract:

This paper investigates the large current account deficits observed in most new EU member states using an intertemporal model. The standard model is extended to include: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, a closed form solution for consumption in the presence of habit persistence and liquidity constraints is derived, yielding a dynamic model for the current account where fiscal deficits have an effect. The model is estimated for a panel of 33 countries. A key finding is that current accounts in most new EU member states are broadly in line with their structural current account positions.

Keywords: Current account; Habit persistence; Liquidity constraints; Transition economies (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0371

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