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A Derivation Of The Optimal Current Account Balance For Barbados, Jamaica And Trinidad And Tobago

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  • JORDAN, Alwyn
  • STANFORD, Sunielle
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    Abstract

    How can monetary authorities determine whether the current account balance is problematic? One method is based on the intertemporal consumption-smoothing model. This paper applies the intertemporal consumption-smoothing model - which is used to derive the optimal current account - to Barbados, Jamaica and Trinidad and Tobago. Once the optimal current account has been derived, it is then compared with actual current account balances and more stringent statistical tests to indicate the efficacy of the model. The findings indicate that the optimal consumption-smoothing model is neither applicable to Barbados nor Trinidad and Tobago, but in contrast, the optimal model that assumes no restrictions on capital flows is valid for Jamaica.

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    Bibliographic Info

    Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

    Volume (Year): 6 (2006)
    Issue (Month): 1 ()
    Pages:

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    Handle: RePEc:eaa:aeinde:v:6:y:2006:i:1_11

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    Related research

    Keywords: Optimal current account; Consumption-smoothing;

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    1. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, World Bank Group, vol. 9(2), pages 305-33, May.
    2. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
    3. Fabio Scacciavillani & Malcolm D. Knight, 1998. "Current Accounts," IMF Working Papers 98/71, International Monetary Fund.
    4. John Y. Campbell, 1988. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," NBER Working Papers 1805, National Bureau of Economic Research, Inc.
    5. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
    6. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1989.
    7. Tim Callen & Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 99/181, International Monetary Fund.
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