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Accounting for the Current Account Behavior in ASEAN-5

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  • Lau, Evan
  • Baharumshah, Ahmad Zubaidi
  • Habibullah, Muzafar Shah

Abstract

Current account are an endogenous variable that contain information about the behavior of the economics agents and is important for economic policymaking as it gives a broad reflection of the stance of macroeconomics policies. The imbalances in current account are a reflection of the forward-looking, dynamic saving and investment decisions in the intertemporal approach to current account modeling. This study empirically analyzed the anatomy of the dynamic current account behavior for the ASEAN-5 countries using present value model. Despite the simplicity, the statistical computations suggest that the agents behave as the forward-looking rational agents in the face of the shocks in the three out of five economies. This implies that the current account acts as a buffer to smooth the consumption in the presence of shock and optimally smoothing its consumption path for these countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1322.

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Date of creation: 03 Jan 2007
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Handle: RePEc:pra:mprapa:1322

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Keywords: Current Account; Present Value Model; Consumption Smoothing; Consumption Tilting;

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  1. Milbourne, Ross & Otto, Glenn, 1992. "Consumption Smoothing and the Current Account," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 31(59), pages 369-84, December.
  2. Razin, A., 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," Papers, Tel Aviv - the Sackler Institute of Economic Studies 2-93, Tel Aviv - the Sackler Institute of Economic Studies.
  3. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers, California Davis - Institute of Governmental Affairs 61, California Davis - Institute of Governmental Affairs.
  4. Sheffrin, Steven M. & Woo, Wing Thye, 1990. "Testing an optimizing model of the current account via the consumption function," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(2), pages 220-233, June.
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  7. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  8. Stelios Makrydakis, 1999. "Consumption-smoothing and the excessiveness of Greece's current account deficits," Empirical Economics, Springer, Springer, vol. 24(2), pages 183-209.
  9. Maurice Obstfeld and Kenneth Rogoff., 1994. "The Intertemporal Approach to the Current Account," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C94-044, University of California at Berkeley.
  10. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1996. "Current Account Sustainability: Selected East Asian and Latin American Experiences," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1509, C.E.P.R. Discussion Papers.
  11. C. John McDermott & Paul Cashin, 1996. "Are Australia's Current Account Deficits Excessive?," IMF Working Papers 96/85, International Monetary Fund.
  12. Costas Karfakis, 1996. "Testing the intertemporal model of the current account: some evidence from Greece," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 3(12), pages 759-762.
  13. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 84(2), pages 147-59.
  14. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries," IMF Working Papers 97/51, International Monetary Fund.
  15. Kunhong Kim & Viv B Hall & Robert A Buckle, 2001. "New Zealand's Current Account Deficit: Analysis based on the Intertemporal Optimisation Approach," Treasury Working Paper Series 01/02, New Zealand Treasury.
  16. 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, World Bank Group, vol. 9(2), pages 305-33, May.
  17. Glenn Otto, 2003. "Can an Intertemporal Model Explain Australia's Current Account Deficit?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(3), pages 350-359.
  18. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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Cited by:
  1. Tahir Mukhtar & Aliya H. Khan, 2011. "The Current Account Dynamics in Pakistan: An Intertemporal Optimisation Perspective," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 50(4), pages 401-421.

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