Towards a theory of current accounts
By: Jaume Ventura
Contributors: Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-29; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-29.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2002
Place of publication: Cambridge, MA
Language: eng
Number of pages: 41
Description: The current accounts data of industrial countries exhibits some strong patterns that are inconsistent with the intertemporal approach to the current account. This is the basic model that international economists have been using for more than two decades to think about current account issues. This paper shows that it is possible to go a long way towards reconciling the theory and the data by introducing two additional features to the basic model: investment risk and adjustment costs to investment. Moreover, these extensions generate new and unexpected theoretical predictions that receive substantial support in the data. The overall message is therefore positive: with a couple of reasonable modifications, the intertemporal approach to the current account provides a fairly good description of the industrial country data. Keywords: Current Account Theory, short and long term capital flows. JEL Classifications: F21, F32.
Notes: "August 2002."

Includes bibliographical references (p. 24-25).

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