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Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey

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  • Tarlok Singh

Abstract

This study surveys the intertemporal optimizing models of trade and current account balance that were developed, calibrated and empirically tested since they came into vogue in the 1980s. The implications of these models often differ from those of static and dynamic conventional non‐optimizing models. The literature on optimizing models has not only grown reasonably fast, but has also witnessed significant advances in methodology, and these models have culminated into a distinct strand of new open‐economy macroeconomics. The studies conducted until the late 1980s have used deterministic perfect‐foresight models, while several studies conducted since the 1990s relax the perfect‐foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents. The future research needs to explore the possibility of tracing any preferred specification of household preferences, model the effect of time‐varying discount factor on household utility function and intertemporal budget constraint, examine the role of costs in international trade, place a parallel emphasis on the empirical verifications of theoretical propositions, examine the relative performance of optimizing vis‐à‐vis non‐optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts.

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  • Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.
  • Handle: RePEc:bla:jecsur:v:21:y:2007:i:1:p:25-64
    DOI: 10.1111/j.1467-6419.2007.00270.x
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    2. Kuziemska-Pawlak, Kamila & Mućk, Jakub, 2020. "Structural current accounts in the European Union countries: cross-sectional exploration," Economic Modelling, Elsevier, vol. 93(C), pages 445-464.
    3. Joseph P. Byrne & Giorgio Fazio & Norbert Fiess, 2009. "The Global Side of the Investment-Saving Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 1033-1040, August.
    4. Singh, Tarlok, 2008. "Testing the Saving-Investment correlations in India: An evidence from single-equation and system estimators," Economic Modelling, Elsevier, vol. 25(5), pages 1064-1079, September.
    5. Garg, Bhavesh & Prabheesh, K.P., 2021. "Testing the intertemporal sustainability of current account in the presence of endogenous structural breaks: Evidence from the top deficit countries," Economic Modelling, Elsevier, vol. 97(C), pages 365-379.
    6. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    7. Chen Fang & Po-Sheng Lin, 2013. "Traded Bond Denominations, Shock Persistence and Current Account Dynamics: Another Look at the Harberger–Laursen–Metzler Effect," Pacific Economic Review, Wiley Blackwell, vol. 18(4), pages 502-529, October.
    8. Boonman, Tjeerd & Litsios, Ioannis & Pilbeam, Keith & Pouliot, William, 2022. "Modelling the trade balance between the northern and southern eurozone using an intertemporal approach," Journal of International Money and Finance, Elsevier, vol. 121(C).
    9. Patrik RYFF, 2010. "Friedman Meets the Joneses: A Model of Essential Money with Consumption Externalities," EcoMod2010 259600146, EcoMod.
    10. Tianding Zhang, 2011. "Endogenous Discounting, Precautionary Savings and the Current Account: the Case of China," Working Papers halshs-00556979, HAL.

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