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Accounting for the Current Account Behavior in ASEAN-5

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

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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  1. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October.
  2. Assaf Razin & Gian-Maria Milesi-Ferretti, 1996. "Current Account Sustainability: Selected East Asian and Latin American Experiences," IMF Working Papers 96/110, International Monetary Fund.
  3. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries: Are they a Problem?," IMF Working Papers 97/51, International Monetary Fund.
  4. Assaf Razin, 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," NBER Working Papers 4334, National Bureau of Economic Research, Inc.
  5. Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
  6. C. John McDermott & Paul Cashin, 1996. "Are Australia's Current Account Deficits Excessive?," IMF Working Papers 96/85, International Monetary Fund.
  7. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 147-59.
  8. 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, vol. 9(2), pages 220-233, June.
  9. Milbourne, Ross & Otto, Glenn, 1992. "Consumption Smoothing and the Current Account," Australian Economic Papers, Wiley Blackwell, vol. 31(59), pages 369-84, December.
  10. Costas Karfakis, 1996. "Testing the intertemporal model of the current account: some evidence from Greece," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 759-762.
  11. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  12. Stelios Makrydakis, 1999. "Consumption-smoothing and the excessiveness of Greece's current account deficits," Empirical Economics, Springer, vol. 24(2), pages 183-209.
  13. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
  14. 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, vol. 36(3), pages 350-359.
  15. 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.
  16. 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.
  17. 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, vol. 9(2), pages 305-33, May.
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