Investment and the Current Account in the Short Run and the Long Run

59 Pages Posted: 6 Nov 2000

See all articles by James M. Nason

James M. Nason

North Carolina State University - Department of Economics

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

Date Written: October 1999

Abstract

Theoretical models of the relationship between investment and the current account impose restrictions on the joint dynamic behavior of these variables. These restrictions come in two forms. One imposes causal orderings on investment and the current account. The other restriction concerns the permanent responses of these variables to different shocks. We use these restrictions to identify empirically structural shocks from vector autoregressions of investment and the current account for Canada. Under certain identifications, our results support the implications of the intertemporal, small open economy model. However, these results are sensitive to perturbations of the identifications.

Keywords: small open economy, intertemporal model, identification

JEL Classification: F41

Suggested Citation

Nason, James M. and Rogers, John H., Investment and the Current Account in the Short Run and the Long Run (October 1999). International Finance Working Paper No. 647. Available at SSRN: https://ssrn.com/abstract=231807 or http://dx.doi.org/10.2139/ssrn.231807

James M. Nason (Contact Author)

North Carolina State University - Department of Economics ( email )

Campus Box 8110
NC State University
Raleigh, NC 27695-8110
United States
(919) 513-2884 (Phone)
(919) 515-5613 (Fax)

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2873 (Phone)
202-736-5638 (Fax)

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