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Consumption Smoothing and the Current Account

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Author Info

  • Claude Bismut
  • Paul Cashin
  • C. John McDermott
  • Pierre-Richard Agénor

Abstract

This paper estimates a simple consumption-smoothing model of the French current account, and examines its capacity to predict recent developments in France’s external performance. The model views the current account as a buffer through which private agents can smooth consumption over time in response to temporary disturbances to output, investment, and government expenditure. The empirical results indicate that the model performs well overall, and predicts correctly the sharp turnaround in France’s external accounts observed in the past three years—a feature of the data that conventional models of trade flows, based on income and relative price variables, appear unable to explain.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/119.

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Length: 18
Date of creation: 01 Nov 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/119

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