TY  - JOUR
AU  - Choi,Horag
AU  - Mark,Nelson C.
TI  - Trending Current Accounts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15244
PY  - 2009
Y2  - August 2009
UR  - http://www.nber.org/papers/w15244
L1  - http://www.nber.org/papers/w15244.pdf
N1  - Author contact info:
Horag Choi
Department of Economics
Monash University
900 Dandenong Road
Caulfield East, VIC 3145
Australia
Tel: +61-3-9903-2848
Fax: +61-3-9903-1128
E-Mail: horag.choi@buseco.monash.edu

Nelson Mark
Department of Economics and Econometrics
University of Notre Dame
Notre Dame, IN  46556
Tel: 574/631-0518
Fax: 574/631-4783
E-Mail: nmark@nd.edu
AB  - Trending current accounts pose a challenge for intertemporal open-economy macro models. This paper shows that a two-country representative-agent business cycle model is able to explain the historical time-paths of the US and Japanese current accounts, both of which display trends but in opposite directions. Households have a state-dependent subjective discount factor such that they become relatively impatient (patient) when societal consumption is abnormally high (low). We present agents in the model with historical observations on the exogenous state variables, run the economy, and compare the current account implied by the model with the data. We find that the model generates national saving behavior that matches the current account's trend. Investment dynamics are important for explaining current account fluctuations around the trend, but not for the trend itself. The model also accounts for the timing of cyclical current account fluctuations around the trend.
ER  -