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Nontraded Goods and the Current Account

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  • Robert Driskill

Abstract

This paper investigates trade balance and current account behavior in response to various shocks when the economy produces and consumes both traded and nontraded goods. Previous analyses of these problems have interpreted current account behavior in terms of tension between parameters that measure intratemporal and intertemporal elasticity, respectively. This paper provides a simple general criterion for whether trade and current account behavior is “perverse”vis‐à‐vis the standard one‐good model results: behavior is perverse if and only if traded and nontraded goods are Edgeworth complements; that is, if the cross‐partial of the instantaneous utility function is positive.

Suggested Citation

  • Robert Driskill, 2001. "Nontraded Goods and the Current Account," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 16-23, February.
    • Handle: RePEc:bla:reviec:v:9:y:2001:i:1:p:16-23
    DOI: 10.1111/1467-9396.00259
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    Cited by:

    1. Min Lu, 2012. "Current account dynamics and optimal monetary policy in a two-country economy," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(3), pages 299-324.
    2. Kang Shi, 2011. "Shock Persistence and Current Account Dynamics," Economics Bulletin, AccessEcon, vol. 31(3), pages 2260-2271.
    3. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," EconomiX Working Papers 2008-9, University of Paris Nanterre, EconomiX.

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