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Intertemporal modeling of the current account

Author

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  • Hassan Belkacem GHASSAN

    (Umm Al-Qura University, Department of Economics)

  • Ramzi DRISSI

    (Department of Economics, Carthage University, Tunisia)

Abstract

This paper explores the long-run current account to GDP ratio in the present value model framework (PVMCA). Firstly, we use Euler equation at macro level to identify a general equation of the per capita current account to GDP. Secondly, through the overlapping generations model we determine the equation of per-capita CA using relevant variables, and discuss the empirical validity of the PVMCA via the quasi-elasticity of CA-to-GDP with respect to the per capita growth rate of output and consumption. We show that the elasticities of CA-to-GDP to per-capita output and to per-capita consumption growths interact in opposite paths, meaning that a higher growth rate of consumption tomorrow involves more saving yesterday and brings up a positive current account balance.

Suggested Citation

  • Hassan Belkacem GHASSAN & Ramzi DRISSI, 2019. "Intertemporal modeling of the current account," Turkish Economic Review, EconSciences Journals, vol. 6(3), pages 185-199, September.
    • Handle: RePEc:cvv:journ2:v:6:y:2019:i:3:p:185-199
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    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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