The Current Account in the Macroeconomic Adjustment Process
This paper provides a formal analysis of the current account balance in a dynamic model with optimizing agents. Two analytical ideas are stressed. First, an economy's current account balance depends as much on fixture economic trends as on the current economic environment. A shift in fiscal policy, for example, will have one effect on the current account if it is perceived to be temporary and another if it is seen to be permanent. Second, temporary disturbances in the economy have permanent effects, by altering the entire future path of the economy's international indebtedness.
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More About This Work
This is a revision of "Some Intertemporal Aspects of Countercyclical Fiscal Policy," presented at the conference on "Allocational and Structural Consequences of Short-run Stabilization Policy in Open Economies," Stockholm, September, 1981. Published in Scandinavian Journal of Economics, vol. 84, no. 2, (1982), pp. 47-59.