Current accounts dynamics in OECD and EU acceding countries - an intertemporal approach

Marcel Fratzscher, Gernot Müller and Matthieu Bussiere

No 311, Working Paper Series from European Central Bank

Abstract: The paper extends the standard intertemporal model of the current account to include two important stylised facts: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, the paper derives a closed form solution for consumption in the presence of habit persistence and liquidity constraints, which allows us to obtain a dynamic model for the current account where fiscal deficits have an effect. The model is estimated for a panel of 33 countries, including the ten EU acceding countries and structural current account positions are derived. A parsimonious specification including relative income, relative investment and the fiscal balance explains well past current account developments. A key finding of the paper is that, from an intertemporal perspective, current accounts in most acceding countries are currently broadly in line with their structural current account positions. JEL Classification: F32, F41

Keywords: current account; habit persistence; liquidity constraints; panel (search for similar items in EconPapers)
Date: 2004-02
Note: 335955
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Citations: View citations in EconPapers (98)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004311

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