Interest Rates, Exchange Rates and Present Value Models of the Current Account

Paul Bergin and Steven Sheffrin ()

Chapter 10 in International Macroeconomic Interdependence, 2017, pp 287-316 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The relaxation of restrictions on international capital flows over the last several decades has greatly increased international integration in asset markets. One indication of this integration is the rise in capital flows used to finance current account deficits, and the resulting accumulation of substantial financial imbalances. Whether such imbalances are a matter of concern depends on the theoretical framework one uses to explain and interpret them. The intertemporal approach to the current account, in its simplest form, focuses on the optimal saving decision of a representative household as it smooths consumption. For example, considering a small open economy experiencing a temporary fall in output, the country would be expected to smooth consumption by borrowing in world capital markets and thereby run a current account deficit. This basic intertemporal model has been extended in many directions in the theoretical literature, to include investment, variable interest rates, nontraded goods, and even monetary policy.

Keywords: Macroeconomics; International; Cooperation; Business Cycles; Exchange Rate; Current Account (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789813225343_0010 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789813225343_0010 (text/html)
Ebook Access is available upon purchase.

Related works:
Working Paper: INTEREST RATES, EXCHANGE RATES AND PRESENT VALUE MODELS OF THE CURRENT ACCOUNT (2003)
Journal Article: Interest Rates, Exchange Rates and Present Value Models of the Current Account (2000)
Working Paper: INTEREST RATES, EXCHANGE RATES AND PRESENT VALUE MODELS OF THE CURRENT ACCOUNT
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789813225343_0010

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().