The role of two interest rates in the intertemporal current account model ∗
نویسنده
چکیده
The paper analyses the role of the lending-deposit interest rate spread in the dynamics of the current account in developing countries. For that purpose we extend the standard perfect-foresight intertemporal model of the current account for the existence of the interest rate spread and simulate the convergence path of developing economies. This model helps explain why in many cases it is optimal for a fast growing, low income countries to run balanced current account. Our theoretical considerations are confirmed by the panel data for 60 developing countries, which points to a significant relationship between the current account and the interest rate spread.
منابع مشابه
Evaluating the Impacts of Balance of Payments Variables Shock on Selected Macroeconomic Variables Using FAVAR
International balance of payments is one of the most common criteria for measuring the flow of trade and capital transfers in an open economy. The three main components of this balance are: trade balance, current account (or difference between export and import of goods and services) and capital account. In this study, factor augmented vector autoregressive model (FAVAR) was used to evaluate th...
متن کاملTime Preference and its Effects on Intertemporal
Time preference has a peculiar role in determining the level of economic activities. Time preferenceis the most important origin of interest rate. In this paper we study the founders and defenders'viewpoints about time preference and then we try to criticize them. It seems that discounting futureutilities is resulting from irrationality and it is ethically indefensible too. From mathematical as...
متن کاملThe Role of Interest Rates and Productivity Shocks in Emerging Market Fluctuations
In this paper we use a quantitative model to explore the potential frictions that distinguish emerging market business cycles from developed small open economies. Following Aguiar and Gopinath (2007) we allow total factor productivity (TFP) to have a stationary and an integrated component. We also allow for shocks to the consumption and investment Euler Equations that operate through the intere...
متن کاملElasticity of Intertemporal Substitution: An Investigation in Iran
We[1] present estimates of the Elasticity of Intertemporal Substitution (EIS) for Iranian households using synthetic cohort panels based on household micro-data. Results show significant difference with the common values used in Dynamic Stochastic General Equilibrium (DSGE) models which are originally based on estimated values for developed countries. We show that this difference has important ...
متن کاملA Structural VAR Approach to the Intertemporal Model of the Current Account
The intertemporal current account approach predicts that the current account of a small open economy is independent of global shocks, and that responses of the current account to countryspecific shocks depend on the persistence of the shocks. The author shows that these predictions impose cross-equation restrictions (CERS) on a structural vector autoregression (SVAR). To test the CERs, the auth...
متن کامل