the turkish current account deficit during the 2011 2015 period turkey s current account deficit as a percentage of gross domestic product gdp was one of the largest among the organization for economic co operation and development countries in this paper we examine if this deficit can be considered optimal using the engel and rogers s approach in this framework the current account of a country is determined by the expected discounted present value of its future share of world gdp relative to its current share a country whose income is anticipated to rise relative to the rest of the world is expected to borrow now and run a current account deficit our findings suggest that turkey s current account deficit in 2015 may be considered optimal if the turkish economy s share in the world economy could continue to grow at rates similar to the past or to the predictions from professional forecasts the same approach however indicates that the current account deficit in 2011 at its peak was unlikely to be optimal jel f32 f41 f43

present value tests of an intertemporal model of the current account abstract this paper first demonstrates that in a simple intertemporal open economy model the current account is equal to the expected decline of the present discounted value of net output of a country net output is defined as gross domestic product less the sum of investment plus government spending it then uses econometric methods for present value models to analyze the current account for four countries in two of these countries the model does a satisfactory job of explaining the current account

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

consumption smoothing and the current account evidence for france 1970 1996 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 3 years a feature of the data that conventional models of trade flows based on income and relative price variables appear unable to explain

investment and the current account in the short run and the long run theoretical models of the relationship between investment and the current account impose restrictions on the joint dynamic behavior of these variables these restrictions come in two forms one imposes causal orderings on investment and the current account the other restriction concerns the permanent responses of these variables to different shocks we use these restrictions to identify empirically structural shocks from vector autoregressions of investment and the current account for canada under certain identifications our results support the implications of the intertemporal small open economy model however these results are sensitive to perturbations of the identifications

measures of fit for rational expectations models this survey provides a detailed description of some of the recent theoretical and empirical literature on rational expectations econometrics the survey pays special attention to non stationarity of the data and to the various methods for evaluating rational expectations models that have been developed as alternatives to the classical statistical approach of testing overidentifying restrictions these methods have become very popular and widely used in empirical research we provide an illustration using danish stock market data and we summarize the many results obtained recently using these measures in areas as diverse as stock prices the term structure of interest rates exchange rates consumption and saving the balance of payments tax smoothing hyperinflation and linear quadratic adjustment cost models for inventories labour demand and money demand

food stamps and food insecurity what can be learned in the presence of nonclassical measurement error policymakers have been puzzled to observe that food stamp households appear more likely to be food insecure than observationally similar eligible nonparticipating households we reexamine this issue allowing for nonclassical reporting errors in food stamp participation and food insecurity extending the literature on partially identified parameters we introduce a nonparametric framework that makes transparent what can be known about conditional probabilities when a binary outcome and conditioning variable are both subject to nonclassical measurement error we find that the food insecurity paradox hinges on assumptions about the data that are not supported by the previous food stamp participation literature

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

permanent and transitory movements in labor income an explanation for excess smoothness in consumption many have argued that if labor income is difference stationary the permanent income hypothesis predicts that consumption should be relatively volatile in u s aggregate data labor income is well characterized as having a unit root however consumption turns out to be relatively smooth this anomaly is known as deaton s paradox i resolve deaton s paradox by providing decompositions of labor income into permanent and transitory components these preserve the univariate dynamic properties of labor income however when agents distinguish permanent and transitory movements in their labor income as the rational expectations hypothesis asserts they should the permanent income hypothesis correctly predicts the observed smoothness in consumption

integral stock norms in divergent systems with lot sizes abstract in this paper an overview is given of integral stock norm formulae for several periodic review production inventory systems the stock norm formulae for all systems are simple and coherent these formulae are used to study the 2 stage divergent system with lot sizing at first glance integral control of divergent systems seems to be questionable due to the fact that the inventory levels of the final products are unbalanced most of the time such imbalance requires additional inventory in the system to obtain the same service level compared to a similar system without imbalance however the results of this paper show that in most cases the impact of imbalance is small this result implies that many divergent systems can be controlled efficiently with an integral control rule furthermore systems with depot as well as without depot will be considered and compared it will appear that the following rule holds in general the positive effect of decreased imbalance in case a depot is present is small compared with the negative effect of decreased ability to satisfy customers demand the only exception to this rule are systems with a large lot size for the common component combined with large coefficients of variation for the final products demand attention will be restricted to the identical products case

viewpoint further results on measuring the well being of the poor using income and consumption we evaluate the relative merits of income and consumption based measures of well being our results provide evidence that consumption better captures well being for those with few resources the bottom deciles of expenditures exceed those of income suggesting under reporting of income the under reporting rate for government transfers is high and rising overall non response is more severe in u s income data than in expenditure data furthermore a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates finally very low consumption is more strongly related to other bad outcomes than very low income on evalue les merites relatifs des mesures de bien etre fondees sur le revenu et la consommation les resultats montrent que la consommation mesure mieux le bien etre de ceux qui ont peu de ressources les deciles au bas de la distribution des depenses depassent les deciles de la distribution des revenus ce qui suggere qu il y aurait des revenus non rapportes le taux de sous declaration des transferts gouvernementaux est eleve et croissant le taux global de non reponses est plus important aux etats unis pour les revenus que pour les depenses de plus les bases de donnees sur la consommation requierent moins d observations que celles sur le revenu pour obtenir le meme degre de precision des evaluations typiques finalement une tres basse consommation est plus fortement co reliee a d autres mauvaises conditions qu un tres bas niveau de revenu

the role of exchange rate for current account a panel data analysis abstract the goal of this paper is to address the role of the real effective exchange rate fundamentals misalignment and volatility for the current account using a panel data analysis for a set of 58 countries over the period of 1994 2014 the results suggest that exchange rate misalignment is relevant for current account adjustment where countries with a more appreciated depreciated exchange rate face a worse better current account performance regarding the role of other control variables current account adjustment is affected by the savings rate where higher lower values are associated with better worse current account performance corroborating the lessons from the consumption smoothing approach there is also evidence of a positive effect for the lagged current account persistence effect for emerging and less developed countries there is evidence of a significant role played by monetary independence where more less monetary independence is associated with better worse current account performance

present value tests of the current account with durables consumption abstract the present value tests of the intertemporal model of the current account usually assume that all goods are traded and that aggregate consumption decisions can be closely approximated by a random walk process this paper extends these models by explicitly introducing durables and nontraded goods into an intertemporal model of the current account and tests the model using canadian data since aggregate consumption expenditures on durables do not exhibit random walk behavior even when the aggregate consumer has a quadratic utility function the model that includes durables makes predictions that differ from those of the basic approach when nontraded goods are also incorporated into the model the most appropriate income variable becomes output net of nontraded production these implications are examined using present value tests the results suggest that in the annual data introduction of both durables and nontraded goods improves upon the model with traded nondurables only this seems to be due to the combination of durables and nontraded goods as durables alone do not sufficiently refine the basic model

mean reversion of the current account evidence from the panel data unit root test abstract theoretically the modern intertemporal model of current account determination implies the stationarity of the current account however the empirical finding in the literature indicates nonstationary current account balances based on conventional unit root tests applying the panel data unit root test of im pesaran and shin we find support for the mean reverting property of the current account this in turn lends support to the intertemporal approach to the current account the policy implication of our findings is that current account deficits in major industrial countries are sustainable

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

the dynamic optimizing approach to import demand a structural model abstract the conventional import demand equations are generally regarded as static and its empirical specifications are often criticized as ad hoc this paper derives a tractable structural import demand equation from the dynamic optimizing intertemporal approach

international capital mobility in oecd countries the feldstein horioka puzzle revisited abstract we utilise the most recent time series techniques of dynamic ols and examine international capital mobility across 23 oecd countries we adopt the saving investment approach where the endogeneity problem is confronted our findings show that capital has been remarkably mobile in most countries over the last three decades

current accounts in the long run and the intertemporal approach a panel data investigation this paper is a theory based study of the long run determinants of the current account ca for many oecd economies after the second world war there has been more long run variation in the ca data than is emphasised by a permanent income version of the intertemporal approach that is based on consumption smoothing and that allows only transitory ca imbalances a theoretical model of the ca is developed based on the broader variant of the intertemporal approach that stresses the long term component of the ca we find that some key theoretical predictions hold while others fail validating the approach but also pointing to its limitations

external financing and balance of payments adjustment in developing countries getting a better policy mix there are a number of alternative strategies for dealing with current account balance of payments deficits one is to ignore them altogether on the grounds that they do not matter here the argument is that in the long term the imbalance between domestic investment and savings which the deficit reflects will be automatically corrected and that mindful of this private external finance will be available to cover excess expenditure in the short term net capital inflows will finance short term net inward transfers of real resources if in long run equilibrium there is a close positive correlation between investment and saving across countries net external financing will be merely a cyclical deviation from this

temporary and permanent government spending in an open economy some evidence for the united kingdom abstract this paper investigates the effects of government spending changes on a small open economy in an intertemporal substitution framework if agents internalize the government s budget constraint temporary and permanent spending have different implications for wealth and consequently different effects on output and the balance of trade estimation of these effects isolates the different channels through which government spending can influence economic activity main findings for the united kingdom are that government spending i crowds out private spending ii is directly productive and iii when rising permanently leads to a negative wealth effect which induces a large rise in work effort

international capital mobility amongst the major industrialised countries too little or too much this paper examines capital flows among the major industrialized countries with a view to assessing m feldstein and c horioka s 1980 claim that international capital mobility is limited it argues that saving investment correlation tests are inherently flawed and proposes an alternative methodology for testing the degree of international capital mobility it finds that capital flows have been excessive in the sense that they are driven by speculative forces rather than by economic fundamentals copyright 1995 by royal economic society

macroeconomic uncertainty precautionary saving and the current account abstract the relationship between current account developments and changes in the macroeconomic environment is a key issue in open economy macroeconomics this paper extends the standard intertemporal model of the current account to incorporate the effects of macroeconomic uncertainty on external saving behavior it is shown that the greater the uncertainty in national cash flow defined as output less investment less government consumption the greater will be the incentive for precautionary saving and ceteris paribus the larger the current account surplus empirical support for the model is found using post war quarterly data for the united states japan and the united kingdom as well as a long time series 1919 1990 for the united states

what drives china s current account the paper offers an empirical taxonomy of the factors driving china s current account a simple present value model with non tradeable goods explains more than 70 percent of current account variability over the period 1982 2007 including the persistent surpluses since 2001 it also correctly predicts the decline of china s current account since 2008 expected increases in the prices of non tradeables e g housing and medical care and expected declines in net output gdp less investment and government spending are the main channels of external adjustment much of china s current account surplus seems driven by shocks that have global effects by persistently depressing the world real interest rate this is consistent with recent theoretical models that suggest that factors related to china s domestic financial development are key in understanding global imbalances

a structural model of multiple welfare program participation and labor supply work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously the authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation the results show asymmetric wage and tax rate effects with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates implying that high welfare tax rates do not necessarily induce major reductions in work effort copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

partial identification methods for evaluating food assistance programs a case study of the causal impact of snap on food insecurity we illustrate how partial identification methods can be used to provide credible inferences on the causal impacts of food assistance programs focusing on the impact that the supplemental nutrition assistance program snap formerly known as the food stamp program has on food insecurity among households with children recent research applies these methods to address two key issues confounding identification missing counterfactuals and nonrandomly misclassified treatment status in this paper we illustrate and extend the recent literature by using data from the survey of income and program participation sipp to study the robustness of prior conclusions the sipp confers important advantages the detailed information about income and eligibility allows us to apply a modified discontinuity design to sharpen inferences and the panel nature allows us to reduce uncertainty about true participation status we find that snap reduces the prevalence of food insecurity in households with children by at least six percentage points

habit formation and the present value model of the current account yet another suspect abstract in a recent paper gruber gruber j w 2004 a present value test of habits and the current account journal of monetary economics 51 1495 1507 claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries extending the present value model of the current account pvm with consumption habits in this paper however i show that the habit forming pvm is observationally equivalent to the pvm augmented with persistent transitory consumption which is induced by world real interest rate shocks based on a small open economy real business cycle soe rbc model endowed with consumption habits as well as persistent world real interest rate shocks this paper resolves the inherent identification problem of the habit forming pvm by bayesian methods to seek effects of habit formation on current account fluctuations in typical small open economies canada and the united kingdom results reveal no clear evidence that habit formation plays a crucial role in current account fluctuations

robustness information processing constraints and the current account in small open economies article i nfo in this paper we examine the effects of two types of induced uncertainty model uncertainty due to robust ness rb and state uncertainty due to finite information processing capacity called rational inattention or ri on consumption and the current account we show that the combination of rb and ri improves the model s predictions for i the contemporaneous correlation between the current account and income and ii the volatility and persistence of the current account in small open emerging and developed economies in addition we show that the two informational frictions improve the model s ability to match the impulse response of consumption to income and the relative volatility of consumption to income growth

teardowns and land values in the chicago metropolitan area an empirical model of residential housing demolitions and the redevelopment process in the chicago metropolitan area supports the theoretical prediction that the sales price of teardown property is approximately equal to its land value we control for sample selection bias associated with non random demolition permit applications using a probit model that accounts for misclassification of the dependent variable the probit models provide statistically significant evidence of misclassification and suggest that prime teardown candidates are small older homes near public transportation and traditional village centers

safety stock optimization in multi stage inventory systems abstract determining appropriate safety stocks in stochastic multi state production distribution systems is a very difficult task approaches for optimal determination of safety stocks regarding cost objectives and service level restrictions which are suitable for practical applications can only be found for a very limited class of multi stage inventory problems like problems of strictly serial structure or special two stage production distribution systems in this paper a procedure for determining the optimal size and distribution of safety stocks in a general serial or divergent production distribution process ruled by a base stock control policy is presented this approach especially allows for taking into account the impact of end item demand correlation on distribution and size of safety stocks by using risk pooling effects in divergent systems a powerful dynamic programming algorithm for solving the safety stock optimization problem is developed and impacts of problem parameter variations on the optimal solution are discussed

what drives us foreign borrowing evidence on external adjustment to transitory and permanent shocks the joint dynamics of us net output consumption and valuation adjusted foreign assets and liabilities characterized empirically following lettau and ludvigson 2004 is shown to be strikingly consistent with current account theory while us consumption is virtually insulated from transitory shocks these contribute considerably to the variation in net output and even more so in gross foreign positions arguably smoothing temporary variations in returns a single permanent shock naturally interpreted as a productivity shock raises consumption swiftly while causing net output to adjust only gradually this leads to persistent procyclical external deficits but interestingly moves gross assets and liabilities in the same direction

international capital mobility in developing countries theory and evidence despite the importance of international capital mobility in influencing the outcome of stabilization policies there is little research on the issue in developing countries this paper tests the degree of capital mobility in nine developing countries using the intertemporal consumption smoothing framework we find considerable evidence to suggest that capital is sufficiently mobile in the countries under examination to facilitate consumption smoothing in the event of shocks to the national cash flow national income net of private investment and government spending our findings also suggest that the impact of shocks to one or more components of the national cash flow on the current account is offset by dynamic responses of other components such that the current account balance is preserved from drastic movements over time

international capital mobility in the long run and the short run can we still learn from saving investment data the idea to learn about international capital mobility from saving and investment data remains appealing our approach is based on var methods and overcomes some of the problems associated with saving investment regressions when the data are non stationary we propose a new measure of long run capital mobility that can be easily calculated as a by product of the estimation procedure of a cointegrated var in an application to historical us and british data we find long run capital mobility to have been remarkably stable over the century whereas variations in the mobility of capital primarily seem to have affected short run capital flows

on the connections between intra temporal and intertemporal trades abstract this paper develops a new theory of international economics by introducing heckscher ohlin features of intra temporal trade into an intertemporal trade approach of current account to do so we consider a dynamic general equilibrium model with tradable sectors of different factor intensities which allows for substitution between intertemporal trade current account adjustment and intra temporal trade goods trade an economy s response to a shock generally involves a combination of a change in the composition of goods trade and a change in the current account flexible factor markets reduce the need for the current account to adjust on the other hand the more rigid the factor markets the larger the size of current account adjustment relative to the volume of goods trade and the slower the speed of adjustment of the current account towards its long run equilibrium we present empirical evidence consistent with the theory

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

current accounts in the euro area an intertemporal approach abstract current accounts have diverged substantially among euro area countries since the creation of the euro this divergence has raised concerns about the sustainability of some member countries external indebtedness this paper uses an intertemporal model of the current account to analyze the fluctuations in current account balances experienced by euro area countries over the last three decades and to disentangle its determinants we find that the model is not rejected for six of the ten euro area countries examined belgium france italy netherlands portugal and spain although it tends to underestimate their current account volatility for these countries we derive the expectations about future income and relative prices which according to the model underlie their current account balances expectations about future growth increased in all southern european countries at the creation of the euro but they diverged considerably by 2005 while in portugal these expectations were below its historical mean by then in spain they were at an historical high

measuring the well being of the poor using income and consumption we examine the relative merits of consumption and income as measures of the material well being of the poor consumption offers several advantages over income because consumption is a more direct measure of well being than income and is less subject to underreporting bias measurement problems with income are problematic for analyses of changes in well being of the poor because the biases appear to have changed over time and are correlated with government policies on the other hand income is often easier to report and is available for much larger samples providing greater power to test hypotheses we begin by considering the conceptual and pragmatic reasons why consumption might be better or worse than income then we employ several empirical strategies to examine the quality of income and consumption data first we compare income and consumption reports for those with few resources as well as their assets and liabilities to examine measurement errors and under reporting second we examine other evidence on the internal consistency of reports of low income or consumption third we compare how well micro data in standard datasets weight up to match aggregates for classes of income and consumption that are especially important for low resource families fourth we validate income and consumption measures by comparing them to other measures of hardship or material well being although the evidence tends to favor consumption measures our analyses suggest that both measures should be used to assess the material well being of the poor

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

consumption smoothing capital controls and the current account in ghana much of the empirical evidence on developing economies indicates that the basic intertemporal model of the current account fails to predict the dynamics of the actual current account series this article argues that the model can predict the dynamics of the current account series if it is appropriately adjusted to reflect the nature of capital mobility and exchange rate policies in these countries using data on ghana that span across capital control and liberalized regimes this article reports three finding first consistent with the existing empirical evidence the basic model fails to predict the dynamics of the actual current account second extending the basic model to capture variations in interest rates and exchange rates better explains the path of the actual current account balances only during the liberalized regime third tests of asymmetric access to the international financial market indicate that economic agents in ghana could not use the international financial market to smooth their con

a present value test of habits and the current account abstract forecasts derived from standard intertemporal current account ica models generally fail to match the volatility of actual current accounts this paper offers a solution to the excess volatility problem of standard ica models by incorporating consumption habits into the standard model the model as developed in the paper shows that significant habit formation implies increased current account volatility as sluggishness is introduced into the consumption adjustment process that follows income shocks a theory consistent measure of the degree of habit formation is estimated using gmm the estimated habit parameter is found to be statistically significant in six of eight quarterly samples

approximations of dynamic multilocation production and inventory problems consider a central depot or plant which supplies several locations experiencing random demands orders are placed or production is initiated periodically by the depot the order arrives after a fixed lead time and is then allocated among the several locations the depot itself does not hold inventory the allocations are finally received at the demand points after another lag unfilled demand at each location is backordered linear costs are incurred at each location for holding inventory and for backorders also costs are assessed for orders placed by the depot the object is to minimize the expected total cost of the system over a finite number of time periods this system gives rise to a dynamic program with a state space of very large dimension we show that this model can be systematically approximated by a single location inventory problem all the qualitative and quantitative results for such problems can then be applied

phoenix risen the resurrection of global finance of all the many changes of the world economy since world war ii few have been nearly so dramatic as the resurrection of global finance a review of five recent books suggests considerable diversity of opinion concerning both the causes and the consequences of financial globalization leaving much room for further research competing historical interpretations stressing the contrasting roles of market forces and government policies need to be reexamined for dynamic linkages among the variables they identify likewise impacts on state policy at both the macro and micro levels should be explored more systematically to understand not just whether constraints may be imposed on governments but also how and under what conditions and what policymakers can do about them finally questions are also raised about implications for the underlying paradigm conventionally used for the study of international political economy and international relations more generally

capital mobility and the relationship between saving and investment rates in oecd countries abstract this paper considers tests that use data on saving and investment rates to determine the degree of international capital mobility two types of evidence are presented to show that a high correlation between saving and investment rates across oecd countries can be consistent with a high degree of capital mobility this evidence qualifies the conclusions of previous studies and casts doubt on the usefulness of testing hypotheses about capital mobility with data on saving and investment rates

testing present value models of the current account a cautionary note following campbell and shiller j pol eco 95 1987 1062 many papers have evaluated the intertemporal approach to the current account by testing restrictions on a vector autoregression var the attractiveness of the campbell shiller methodology is that it is thought to be immune to omitted information this paper shows that this is not always true in particular it is shown that if fundamentals are driven by unobserved to the econometrician permanent and transitory components then the restrictions of a standard present value model of the current account might not be testable with a var this is because the theoretical moving average representation can turn out to be non invertible this implies that observed data including the current account do not reveal the underlying shocks to agents information sets the paper shows how researchers employing the campbell shiller methodology can be tricked into thinking the current account responds excessively to shocks when in fact the data are consistent with the theory

are current account deficits sustainable evidence from panel cointegration abstract conventional cointegration tests fail to consider information across countries which leads to efficiency loss in estimation in this article we apply panel cointegration tests to examine the cointegration between exports and imports among the g7 our findings support the sustainability of current accounts among major industrial countries which lends support to the intertemporal approach to the current account

how well can the new open economy macroeconomics explain the exchange rate and current account abstract this paper advances the new open economy macroeconomic literature in an empirical direction estimating and testing a two country model fit to u s and g7 data the model performs moderately well for the exchange rate and current account results offer guidance for future theoretical work parameter estimates lend support to the assumption of local currency pricing estimates are found for key parameters commonly calibrated in the theoretical literature such as the elasticity of substitution between home and foreign composite goods and the response of a country s risk premium to the net foreign asset position results also indicate that deviations from interest rate parity are not closely related to monetary policy shocks as recently hypothesized but that these deviations are strongly related to shifts in the current account

consumption smoothing channels in open economies abstract many intertemporal open economy macro models imply a theory of consumption smoothing channels thus we build an empirical model to analyze the intertemporal smoothing role of saving components fixed investments inventories and trade balance through the use of var impulse responses to different types of shocks we find that for the oecd countries the bulk of intertemporal smoothing has been carried out domestically via gross fixed investments and inventories but the trade balance has also played a relevant albeit volatile smoothing role we also characterize the dynamic behavior of each component the trade balance and inventories are mostly used as short run smoothing tools while fixed investment provides more and more smoothing over time we can also address some empirical puzzles such as the excess sensitivity of investment anomaly glick r rogoff k 1995 global versus country specific productivity shocks and the current account journal of monetary economics 35 159 192 and the saving investment correlation puzzle feldstein m horioka c 1980 domestic saving and international capital flows economic journal 90 314 329

international macroeconomic fluctuations and the current account intertemporal models of the current account generally assume that global shocks do not affect the current account we use this assumption to identify global and country specific shocks in a bivariate var we test the quality of the identification using evidence from g7 data in accordance with the theory we observe a link between the global shock and a measure of the world real interest rate we also find that long term output growth is driven by global factors in most countries that country specific shocks are less persistent in smaller economies and generally less volatile than global shocks

measuring international business cycles by saving for a rainy day macroeconomics inevitably begins with a trend cycle decomposition of a nation s output we propose a decomposition in which consumption is the trend component and savings is the cycle component using data from the g 7 plus australia we show that this decomposition identifies international business cycles that are i more volatile ii of longer mean duration and iii less correlated across countries than the cycle component from the hodrick prescott filter we argue that this difference stems from the fact that our method imposes a basic theoretical restriction arising from the permanent income hypothesis similar to the restriction used in cochrane s 1994 decomposition resume mesurer les cycles d affaires internationaux par l epargne les travaux en macroeconomie commencent inevitablement par une decomposition du profil de la production nationale en tendance et cycles les auteurs proposent une decomposition ou la composante consommation est la tendance et l epargne est la composante cyclique utilisant les donnees du g 7 et de l australie on montre que cette decomposition identifie les cycles d affaires internationaux qui sont i plus volatiles ii d une duree moyenne plus longue et iii moins co relies entre pays que la composante cyclique a la hodrick prescott les auteurs suggerent que la difference provient du fait que leur methode impose une restriction theorique de base emergent de l hypothese du revenu permanent semblable a la restriction utilisee dans la decomposition a la cochrane 1994

collateral constraints and the current account theory and evidence we investigate the impact of domestic financial frictions on the current account dynamics in asian countries before and after the asian financial crisis in 1997 1998 by introducing collateral constraints into the intertemporal current account approach we examine six asian countries before the crisis collateral constraints significantly impact the current account in korea malaysia the philippines and thailand but after the crisis they do not our study shows that the impact of domestic financial frictions on the current account changes before and after a financial crisis jel f32 f41

current account dynamics under information rigidity and imperfect capital mobility abstract the current account in developed countries is highly persistent and volatile in comparison to their output growth the standard intertemporal current account model with rational expectations re fails to explain the observed current account and consumption dynamics the re model extended with imperfect capital mobility by shibata and shintani 1998 can account for the consumption dynamics but only at the cost of the explanatory power for the volatility of the current account this paper replaces re in the intertemporal current account model with sticky information si in which consumers are inattentive to shocks to their income the si model can better explain a persistent and volatile current account than the re model but it overpredicts the persistence of changes in consumption the si model extended with imperfect capital mobility explains both the current account and consumption provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered

consumption smoothing in a small cyclically volatile open economy evidence from new zealand abstract new zealand s current account of the balance of payments has been persistently in deficit since the early 1970s and increased markedly during the late 1990s should this cause significant concern for such a small cyclically volatile open economy our results show that var1 and var2 forms of the traditional intertemporal consumption smoothing model reflect very satisfactorily the volatile directions and turning points observed that the data are not consistent with consumption tilting to the present and that new zealand has had considerable success to date in consumption smoothing around its average 5 current account deficit perhaps more unexpectedly a bergin sheffrin type model of a small open economy with variable interest rates and exchange rates has not performed noticeably better

current accounts in debtor and creditor countries the authors reexamine a classic question in international economics what is the current account response to a transitory income shock such as a temporary improvement in the terms of trade a transfer from abroad or unusually high production to answer this question they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities despite its conventional ingredients the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries evidence from thirteen oecd countries broadly supports this theoretical prediction

external shocks consumption smoothing and capital mobility in india evidence from an intertemporal optimization approach we examine the solvency of india s current account ca in the post liberalization period using intertemporal optimization approach to the ca using quarterly data ranging from 1996q1 to 2014q2 we

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

mean reverting behavior of current account in asian countries abstract this paper adopted the series specific panel unit root test of breuer et al oxford bulletin of economics and statistics 64 2002 suradf 527 546 to test for the mean reverting behavior of current account for the panel of twelve asian countries the results illustrate that the current accounts in these countries are a mixture of i 0 and i 1 process and the commonly used panel root tests could lead to misleading inferences

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

the feldstein horioka puzzle revisited abstract this paper confirms the evidence that the feldstein horioka test does not reflect capital mobility in the real side world economy but only the variability between external and domestic saving

financial integration of east asian economies evidence from real interest parity in this article we investigate the financial linkages between the east asian economies with japan and the united states we test for long run real interest rate parity rip using an array of panel data techniques including recent techniques developed by breuer et al 2002 and carrion i silvestre et al 2005 this study offers two important results first the failure to account for structural breaks in the industrialized countries and asian emerging economies is likely to provide evidence of nonstationary series that are stationary second we found strong evidence that the parity condition holds in all the asian countries the failure of earlier studies to confirm mean reversion of real interest rate differential rid may reflect the choice of estimation testing procedure rather than any inherent deficiency in the rip

estimation with response error and nonresponse error in survey data originates from failure to contact the sample and from false answers to verifiable questions these errors may be systematic and associated with uncooperative or unreliable respondents zabel modeled attrition in the survey of income and program participation and found systematic demographic and design effects bollinger and david modeled response error and identified correlations to income per capita in this analysis we link missing interviews in a panel and response error through a trivariate probit analysis robustness of the correlation between attrition and response error is examined by comparing variants of the model the joint model of response error and attrition becomes the first stage of a pseudolikelihood estimate of a model of food stamp participation the model is significantly different from naive probit on the survey data

putting the new open economy macroeconomics to a test abstract this paper explores one way to extend the new open economy macroeconomics in an empirical direction adapting maximum likelihood procedures it estimates and tests an intertemporal small open economy model with monetary shocks and nominal rigidities results offer mixed support for a benchmark model where prices are assumed to be sticky in the currency of the buyer price stickiness seems to be an important element as overall results are poorer for versions of the model in which prices either are flexible or are sticky in the currency of the producer the benchmark model does a better job explaining some variables than others in particular it does a poor job explaining exchange rate movements

semi parametric predictions of the intertemporal approach to the current account abstract this paper uses the method dynamic programming dp by gmm and canadian data to estimate a dynamic model of a small open economy dp by gmm has several appealing features it does not impose certainty equivalence it accommodates multiple shocks and imposes few restrictions on the properties of the shocks in the model also since it uses the actual shocks series to estimate approximate decision rules it produces sample paths for the endogenous variables in the model the model estimated fits the data well in particular the variance of the predicted trade balance output ratio matches its empirical counterpart