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Intertemporal Price Speculation and the Optimal Current-Account Deficit: Reply and Clarification

Author

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  • Maurice Obstfeld.

Abstract

In the model of Obstfeld (1983), a country hurt by a temporary shift in its terms of trade, whether the shift is infinitesimal or not, always runs a temporary current-account deficit. Temporary rises in relative export prices always cause surpluses in the model. This note derives these results within an analysis that clarifies how temporary terms-of-trade shocks affect the consumption-based real interest rate on external debt and, hence, the current account.
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Suggested Citation

  • Maurice Obstfeld., 1996. "Intertemporal Price Speculation and the Optimal Current-Account Deficit: Reply and Clarification," Center for International and Development Economics Research (CIDER) Working Papers C96-063, University of California at Berkeley.
    • Handle: RePEc:ucb:calbcd:c96-063
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    Cited by:

    1. Bouakez, Hafedh & Kano, Takashi, 2008. "Terms of trade and current account fluctuations: The Harberger-Laursen-Metzler effect revisited," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 260-281, March.
    2. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 337-365.
    3. 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.
    4. Olivier Cardi, 2007. "The Zero‐root Property: Permanent vs Temporary Terms‐of‐trade Shocks," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 782-802, September.
    5. Gabriela Contreras & Alejandro Jara & Eduardo Olaberría & Diego Saravia, 2011. "Sobre el nivel de reservas internacionales de Chile: análisis a partir de enfoques complementarios," Working Papers Central Bank of Chile 621, Central Bank of Chile.
    6. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
    7. Pranab Bardhan., 1996. "The Nature of Institutional Impediments to Economic Development," Center for International and Development Economics Research (CIDER) Working Papers C96-066, University of California at Berkeley.
    8. Meltem Ince, 2010. "Global Financial Crisis and Turkey: Effects and Suggestions," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 101-117.

    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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