The Role of Stock Markets in Current Account Dynamics: a Time-Series Approach

Benoît Mercereau

No 2004/050, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a simple model to study the impact of stock markets on the current account. A closed-form solution for the current account is derived from the optimal portfolio and consumption/saving choices of a representative agent. Formally, the model can be seen as a stock market-augmented version of the "fundamental equation of the current account" popularized by Jeffrey Sachs. It appears to shed light on recent developments in the U.S. current account deficit. The model also shows how the current account may help predict future stock market performance and/or endowment streams.

Keywords: WP; stock market boom (search for similar items in EconPapers)
Pages: 30
Date: 2004-03-01
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Citations: View citations in EconPapers (10)

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