Consumption Smoothing and the Current Account: Evidence for France, 1970-1994

Claude Bismut, Paul Cashin (), Christopher McDermott and Pierre-Richard Agénor

No 1995/119, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates a simple consumption-smoothing model of the French current account, and examines its capacity to predict recent developments in France’s external performance. The model views the current account as a buffer through which private agents can smooth consumption over time in response to temporary disturbances to output, investment, and government expenditure. The empirical results indicate that the model performs well overall, and predicts correctly the sharp turnaround in France’s external accounts observed in the past three years—a feature of the data that conventional models of trade flows, based on income and relative price variables, appear unable to explain.

Keywords: WP; cash flow; cash flow variable; consumption-smoothing model; consumption tilting; current account cat; interest cash flow; current account act; utility function; current account World interest rate; Current account; Consumption; Currencies; Consumption distribution; Current account balance (search for similar items in EconPapers)
Pages: 18
Date: 1995-11-01
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1995/119

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