Munich Personal RePEc Archive

Intertemporal Modeling of the Current Account

Ghassan, Hassan B. and Drissi, Ramzi (2016): Intertemporal Modeling of the Current Account. Published in: Turkish Economic Review , Vol. 61, No. 3 (September 2019): pp. 185-199.

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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.

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