Towards a Theory of Current Accounts

Jaume Ventura

No 3545, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The current accounts data of industrial countries exhibits some strong patterns that are inconsistent with the intertemporal approach to the current account. This is the basic model that international economists have been using for more than two decades to think about current account issues. This paper shows that it is possible to go a long way towards reconciling the theory and the data by introducing two additional features to the basic model: investment risk and adjustment costs to investment. Moreover, these extensions generate new and unexpected theoretical predictions that receive substantial support in the data. The overall message is therefore positive: with a couple of reasonable modifications, the intertemporal approach to the current account provides a fairly good description of the industrial country data.

Keywords: Current account theory; Short and long term capital flows (search for similar items in EconPapers)
JEL-codes: F21 F32 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Towards a Theory of Current Accounts (2003)
Working Paper: Towards a Theory of Current Accounts (2002)
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