The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence

Assaf Razin

NBER Working Paper No. 4334 (Also Reprint No. r1984)
Issued in July 1995
NBER Program(s):   IFM

The organization of this paper is as follows. Section I builds an empirically implementable model of the current account. Likewise, Section II derives the essential time series properties of the real exchange rate. Positive implications of the intertemporal approach against panel and international cross section data are analyzed in Section III. Section IV brings out evidence relevant for the normative implications of the intertemporal approach, highlighting the role of taxes and incentives, capital controls, and convergence of growth rates. Section V concludes.

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Published: Understanding Interdependence: The Macroeconomics of Open Economy, Peter B. Kenen, ed., Princeton University, 1995, pp. 169-198.

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