Intertemporal modeling of the current account
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Keywords

Current account
Consumption
Intertemporal Model
Per-capita GDP
Quasi-elasticity.

How to Cite

GHASSAN, H. B., & DRISSI, R. (2019). Intertemporal modeling of the current account. Turkish Economic Review, 6(3), 185–199. https://doi.org/10.1453/ter.v6i3.1936

Abstract

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.

JEL. E10, E20, F40.

https://doi.org/10.1453/ter.v6i3.1936
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