A Model of Endogenous Nontradability and its Implications for the Current Account
AbstractThis paper studies how nontraded goods limit the ability of a country to finance current account deficits. It uses an intertemporal model of the current account for a small open economy where goods are endogenously nontraded due to explicit trade costs. The economy has an endowment of two goods with differing trade costs, either of which can be traded or nontraded in equilibrium. The model implies that current account deficits impose a cost, in the form of raising the effective interest rate in the country. The findings differ from some recent studies: first, in that the interest rate rises even for countries with modest current account deficits; secondly, the interest rate cost eventually reaches an upper bound as current account deficits grow, and progressively more nontraded goods become traded to service the debt. Panel regression analysis of interest rate and current account data is consistent with our conclusions. Copyright � 2007 The Authors; Journal compilation � 2007 Blackwell Publishing Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 15 (2007)
Issue (Month): 5 (November)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.