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Investment and the current account in the short run and the long run

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  • James M. Nason
  • John H. Rogers

Abstract

Theoretical models of the relationship between investment and the current account impose restrictions on the joint dynamic behavior of these variables. These restrictions come in two forms. One imposes causal orderings on investment and the current account. The other restriction concerns the permanent responses of these variables to different shocks. We use these restrictions to identify empirically structural shocks from vector autoregressions of investment and the current account for Canada. Under certain identifications, our results support the implications of the intertemporal, small open economy model. However, these results are sensitive to perturbations of the identifications.

Suggested Citation

  • James M. Nason & John H. Rogers, 1999. "Investment and the current account in the short run and the long run," International Finance Discussion Papers 647, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:647
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    References listed on IDEAS

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    1. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
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    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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