Intertemporal modeling of the current account

Hassan Belkacem GHASSAN, Ramzi DRISSI

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.


Keywords


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

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References


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DOI: http://dx.doi.org/10.1453/ter.v6i3.1936

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