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Aspects of the Current Account Behavior of OECD Economies

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  • Jeffrey D. Sachs
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    Abstract

    This essay examines some aspects of capital flows within the OECD, and outlines a framework for analyzing current account movements. In both the theoretical and empirical sections, I argue for the importance of including investment and growth in analyses of the current account. I present empirical evidence confirming that shifts in investment rates explain a large part of recent OECD current account behavior. In addition, the links in theory and practice between exchange rates and the current account are scrutinized. A link between current account deficits and depreciation is evident for the large OECD economies, but not for many smaller European economies. It appears that the exchange rate behavior in the smaller economies can be explained by specific exchange rate policies in these economies.

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    File URL: http://www.nber.org/papers/w0859.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0859.

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    Date of creation: Feb 1982
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    Handle: RePEc:nbr:nberwo:0859

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    1. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
    2. Rodriguez, Carlos Alfredo, 1980. "The Role of Trade Flows in Exchange Rate Determination: A Rational Expectations Approach," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1148-58, December.
    3. Obstfeld, Maurice, 1980. "Imperfect asset substitutability and monetary policy under fixed exchange rates," Journal of International Economics, Elsevier, vol. 10(2), pages 177-200, May.
    4. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 673-98, August.
    5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Cohen, Daniel & Sachs, Jeffrey, 1986. "Growth and external debt under risk of debt repudiation," European Economic Review, Elsevier, vol. 30(3), pages 529-560, June.
    2. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
    3. Hamizun Ismail & Ahmad Baharumshah, 2008. "Malaysia’s current account deficits: an intertemporal optimization perspective," Empirical Economics, Springer, vol. 35(3), pages 569-590, November.

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