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A Derivation Of The Optimal Current Account Balance For Barbados, Jamaica And Trinidad And Tobago

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  • JORDAN, Alwyn
  • STANFORD, Sunielle

Abstract

How can monetary authorities determine whether the current account balance is problematic? One method is based on the intertemporal consumption-smoothing model. This paper applies the intertemporal consumption-smoothing model - which is used to derive the optimal current account - to Barbados, Jamaica and Trinidad and Tobago. Once the optimal current account has been derived, it is then compared with actual current account balances and more stringent statistical tests to indicate the efficacy of the model. The findings indicate that the optimal consumption-smoothing model is neither applicable to Barbados nor Trinidad and Tobago, but in contrast, the optimal model that assumes no restrictions on capital flows is valid for Jamaica.

Suggested Citation

  • JORDAN, Alwyn & STANFORD, Sunielle, 2006. "A Derivation Of The Optimal Current Account Balance For Barbados, Jamaica And Trinidad And Tobago," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).
    • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:1_11
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimal current account; Consumption-smoothing;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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