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INTEREST RATES, EXCHANGE RATES AND PRESENT VALUE MODELS OF THE CURRENT ACCOUNT

Paul Bergin and Steven Sheffrin ()

Department of Economics from California Davis - Department of Economics

Abstract: This paper develops an intertemporal model of the current account that allows for variable interest rates and exchange rates. These additional variables are channels through which external shocks may influence the domestic current account. We test the restrictions imposed by the theory, using quarterly data from three small open economies. The paper finds that including the interest rate and exchange rte significantly improves the fit of the intertemporal model over what was found in previous studies. the augmented model produces a forecast that better matches the volatility of current account data and better explains historical episodes of current account imbalance.

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Related works:
Chapter: Interest Rates, Exchange Rates and Present Value Models of the Current Account (2017) Downloads
Working Paper: INTEREST RATES, EXCHANGE RATES AND PRESENT VALUE MODELS OF THE CURRENT ACCOUNT (2003) Downloads
Journal Article: Interest Rates, Exchange Rates and Present Value Models of the Current Account (2000) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fth:caldec:97-22

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