Present value tests of an intertemporal model of the current account

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 th...

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Bibliographic Details
Published in:Journal of international economics 1990-11, Vol.29 (3-4), p.237-253
Main Authors: Sheffrin, Steven M., Woo, Wing Thye
Format: Article
Language:English
Subjects:
Balance of payments
Comparative studies
Current accounts
Econometrics
Economic models
Economic theory
Expected values
Foreign exchange
Manycountries
Output
Present value
Regression analysis
Utility functions
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Summary: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.
ISSN:0022-1996
1873-0353
DOI:10.1016/0022-1996(90)90032-H