Current Account Dynamics in OECD and EU Acceding Countries - an Intertemporal Approach

40 Pages Posted: 15 May 2004

See all articles by Matthieu Bussière

Matthieu Bussière

Banque de France

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: February 2004

Abstract

The paper extends the standard intertemporal model of the current account to include two important stylised facts: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, the paper derives a closed form solution for consumption in the presence of habit persistence and liquidity constraints, which allows us to obtain a dynamic model for the current account where fiscal deficits have an effect. The model is estimated for a panel of 33 countries, including the ten EU acceding countries and structural current account positions are derived. A parsimonious specification including relative income, relative investment and the fiscal balance explains well past current account developments. A key finding of the paper is that, from an intertemporal perspective, current accounts in most acceding countries are currently broadly in line with their structural current account positions.

Keywords: Current account, habit persistence, liquidity constraints, panel regressions, acceding countries

JEL Classification: F32, F41

Suggested Citation

Bussiere, Matthieu and Fratzscher, Marcel and Müller, Gernot J., Current Account Dynamics in OECD and EU Acceding Countries - an Intertemporal Approach (February 2004). Available at SSRN: https://ssrn.com/abstract=515074

Matthieu Bussiere (Contact Author)

Banque de France ( email )

Paris
France

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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