Interest Rates, Exchange Rates and Present Value Models of the Current Account
AbstractThis paper develops a testable intertemporal model of the current account that allows for variable interest rates and exchange rates. These additional variables are channels through which external shocks may influence the domestic current account. The restrictions from the theoretical model are subjected to present value tests using quarterly data from three small open economies. The paper finds that including the interest rate and exchange rate improves the fit of the intertemporal model over what was found in previous studies. The model predictions better replicate the volatility of current account data and better explain historical episodes of current account imbalance.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 110 (2000)
Issue (Month): 463 (April)
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Other versions of this item:
- Steven M. Sheffrin & Paul Bergin, 2003. "Interest Rates, Exchange Rates And Present Value Models Of The Current Account," Working Papers 9722, University of California, Davis, Department of Economics.
- Paul Bergin & Steven Sheffrin, . "Interest Rates, Exchange Rates And Present Value Models Of The Current Account," Department of Economics 97-22, California Davis - Department of Economics.
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