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Current Accounts in the Long Run and the Intertemporal Approach: A Panel Data Investigation
Author(s) -
Cerrato Mario,
Kalyoncu Huseyin,
Naqvi Naveed Hassan,
Tsoukis Christopher
Publication year - 2015
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12152
Subject(s) - economics , consumption (sociology) , econometrics , current account , permanent income hypothesis , short run , consumption smoothing , term (time) , macroeconomics , business cycle , life cycle hypothesis , social science , physics , quantum mechanics , sociology , exchange rate
This paper is a theory‐based study of the long‐run determinants of the current account ( CA ). For many OECD economies after the Second World War, there has been more long‐run variation in the CA data than is emphasised by a ‘Permanent Income’ version of the intertemporal approach that is based on consumption‐smoothing and that allows only transitory CA imbalances. A theoretical model of the CA is developed, based on the ‘broader’ variant of the intertemporal approach that stresses the long‐term component of the CA . We find that some key theoretical predictions hold, while others fail, validating the approach but also pointing to its limitations.