U.S. International Capital Flows: Perspectives from Rational Maximizing Models

57 Pages Posted: 18 Dec 2010

See all articles by Robert J. Hodrick

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 1988

Abstract

This paper examines several aspects of the debate about the causes of the U.S. current account deficit in the 1980's. It surveys several popular explanations before developing two theoretical models of international capital flows. The first model is Ricardian, and it extends the analysis of Stockman and Svensson (1987): The second model is an overlapping generations framework. The major difference in predictions of these two models involves the effects of government budget deficits on the exchange rate and the current account. An update of the empirical investigation of Evans (1986) suggests that his VAR methodology is completely uninformative with additional data. Some empirical results on the importance of risk aversion in modeling international capital market equilibrium are also presented.

Suggested Citation

Hodrick, Robert J., U.S. International Capital Flows: Perspectives from Rational Maximizing Models (October 1988). NBER Working Paper No. w2729. Available at SSRN: https://ssrn.com/abstract=1727866

Robert J. Hodrick (Contact Author)

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