Current Accounts in the Long and Short Run

Aart Kraay () and Jaume Ventura

No 9030, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Faced with income fluctuations, countries smooth their consumption by raising savings when income is high, and vice versa. How much of these savings do countries invest at home and abroad? In other words, what are the effects of fluctuations in savings on domestic investment and the current account? In the long run, we find that countries invest the marginal unit of savings in domestic and foreign assets in the same proportions as in their initial portfolio, so that the latter is remarkably stable. In the short run, we find that countries invest the marginal unit of savings mostly in foreign assets, and only gradually do they rebalance their portfolio back to its original composition. This means that countries not only try to smooth consumption, but also domestic investment. To achieve this, they use foreign assets as a buffer stock.

JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2002-06
Note: IFM ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

Published as Gertler, Mark and Kenneth S. Rogoff (eds.) NBER Macroeconomics Annual 2002, Volume 17. Cambridge, MA: The MIT Press, 2003.
Published as Aart Kraay & Jaume Ventura, 2002. "Current Accounts in the Long and the Short Run," NBER Macroeconomics Annual, vol 17, pages 65-94.

Downloads: (external link)
http://www.nber.org/papers/w9030.pdf (application/pdf)

Related works:
Chapter: Current Accounts in the Long and the Short Run (2003)
Working Paper: Current Accounts in the Long and Short Run (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:9030

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9030

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().