The Intertemporal Approach to the Current Account

Obstfeld, Maurice; Rogoff, Kenneth

doi:10.3386/w4893

Cited by 258 publications

(301 citation statements)

References 52 publications

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“…7 In the context of tax and environmental policy see, for example, Bovenberg and Heijdra (1998). Representative applications of the BY framework in the open economy context include Frenkel andRazin (1986), Buiter (1987), Obstfeld and Rogoff (1995), and Heijdra and Romp (2008). 8 As in Heijdra and Ligthart (2006) and Bettendorf and Heijdra (2006), the demographic disturbances modeled in this paper are time-dependent, but cohort independent.…”

Section: Introductionmentioning

confidence: 99%

Keeping up with the ageing Joneses

Fisher

Heijdra

2009

Journal of Economic Dynamics and Control

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In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky (2005). In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.JEL Codes: D91, E21

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Section: Introductionmentioning

confidence: 99%

Keeping up with the ageing Joneses

Fisher

Heijdra

2009

Journal of Economic Dynamics and Control

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“…I 1 For a good account of the basic history and origins of the intertemporal approach, see Obstfeld and Rogoff [1995] and Obstfeld and Rogoff [1996]. Intellectually, the intertemporal approach is a precursor in the development of the New Open Economy Macroeconomics.…”

Section: Introductionmentioning

confidence: 99%

Hurricanes: Intertemporal Trade and Capital Shocks

Bluedorn

2005

SSRN Journal

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Hurricanes in the Caribbean and Central America represent a natural experiment to test the intertemporal approach to current account determination. The intertemporal approach allows for the possibility of intertemporal trade, via international borrowing. Previous tests of intertemporal current account (ICA) models have typically relied upon the identification of shocks in a VAR framework with which to trace the current account response. Hurricane shocks represent exactly the kind of temporary, country-specific shock required by the theory, allowing for the intertemporal current account response to be estimated without recourse to a VAR shock decomposition. Using data on the economic damages attributable to a hurricane, I estimate the economy's response to a hurricane-induced capital shock within a fixed effects panel model. The current account response qualitatively conforms to the S-shaped response predicted by the theory, indicating that countries are engaging in intertemporal trade. However, the exact timing and magnitude of the response differs from a standard ICA model's smooth behavior. A hurricane which destroys capital valued at one year's GDP pushes the current account over GDP into deficit by 5 percentage points initially. 3-8 years after such a hurricane, the current account over GDP moves into surplus at 2.7 percentage points.JEL Classification: F320, F410

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“…The intertemporal approach to the CA originated with Sachs (1981Sachs ( , 1982 and was later extended by Obstfeld and Rogoff (1995) 4 . The approach is based on the permanent income hypothesis of Friedman (1957) and expectation theory of Hall (1978).…”

Section: Review Of Literaturementioning

confidence: 99%

External shocks, consumption-smoothing and capital mobility in India: evidence from an intertemporal optimization approach

Garg

Prabheesh

2018

Applied Economics

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We examine the solvency of India's current account (CA) in the post-liberalization period using intertemporal optimization approach to the CA. Using quarterly data ranging from 1996Q1 to 2014Q2, we estimate a benchmark consumption-smoothing model and an extended model that incorporates external shocks. Overall, we find that the predicted optimal CA in both the models can track the actual CA movements and the extended model performs better over the benchmark model. Further, we also find that the optimal CA is more volatile than the actual CA which implies that the capital flows have been less than optimal and thus makes an interesting case for further liberalization of the capital account. Our findings suggest that policies aimed at further liberalization of capital flows will allow larger CA deficits to achieve higher economic growth since it will help agents to further smoothen their consumption without worrying about risks associated with insolvency.

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The Intertemporal Approach to the Current Account

Cited by 258 publications

References 52 publications

Keeping up with the ageing Joneses

Keeping up with the ageing Joneses

Hurricanes: Intertemporal Trade and Capital Shocks

External shocks, consumption-smoothing and capital mobility in India: evidence from an intertemporal optimization approach

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