Adler, Johan (Department of Economics, School of Economics and Commercial Law, Göteborg University)
Abstract
This paper extends the theory of open economy consumption behavior by applying Flavin's (1993) excess sensitivity hypothesis (ESH) to the current account. The ESH can be interpreted as a generalization of the open economy permanent income hypothesis (PIH) that allows for any degree of international capital mobility. As such, the ESH can account for why the PIH fails and for the related puzzle of an excessively volatile current account. Furthermore, the ESH suggests an alternative approach for assessing a country's degree of international capital mobility. Using annual Swedish data for the period 1951-99, the empirical evidence implies that, in contrast to the PIH, the ESH cannot be rejected.
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Publisher Info
Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number
88.
Length: 29 pages Date of creation: 18 Feb 2003 Date of revision: Handle: RePEc:hhs:gunwpe:0088
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden Phone: 031-773 10 00 Web page: http://www.handels.gu.se/econ/ More information through EDIRC
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