A Theory of Current Account and Exchange Rate Determinations
The purpose of this paper Is to construct a two-period, two-country model that derives the current account, the exchange rate,the terms of trade, and real interest rates from optimal behavior principles.This is done by constructing a model that uses money mainly as a means of exchange, where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions. The discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure, in which the two approaches are complementary viewpoints.
Published: Aizenman, Joshua. "A Theory of Current Account and Exchange Rate Determinations." European Economic Review, Vol. 23, (1983), pp. 261-280.