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Intertemporal Modeling of the Current Account

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  • Ghassan, Hassan B.
  • Drissi, Ramzi

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.

Suggested Citation

  • Ghassan, Hassan B. & Drissi, Ramzi, 2016. "Intertemporal Modeling of the Current Account," MPRA Paper 96729, University Library of Munich, Germany, revised 2018.
    • Handle: RePEc:pra:mprapa:96729
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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