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Intertemporal Modeling of the Current Account

Hassan Ghassan () and Ramzi Drissi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the long-run current account to GDP ratio in the present value model framework (PVMCA). Firstly, we use Euler equation at macro level to identify a general equation of the per capita current account to GDP. Secondly, through the overlapping generations model we determine the equation of per-capita CA using relevant variables, and discuss the empirical validity of the PVMCA via the quasi-elasticity of CA-to-GDP with respect to the per capita growth rate of output and consumption. We show that the elasticities of CA-to-GDP to per-capita output and ant to per-capita consumption growths interact in opposite paths, meaning that a higher growth rate of consumption tomorrow involves more saving yesterday and brings up a positive current account balance.

Keywords: Current account; Consumption; Intertemporal Model; Per-capita GDP; Quasi-elasticity. (search for similar items in EconPapers)
JEL-codes: E1 E2 F4 (search for similar items in EconPapers)
Date: 2016, Revised 2018
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Published in Turkish Economic Review 3.61(2019): pp. 185-199

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