TY  - JOUR
AU  - Obstfeld,Maurice
AU  - Rogoff,Kenneth
TI  - The Intertemporal Approach to the Current Account
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4893
PY  - 1996
Y2  - April 1996
UR  - http://www.nber.org/papers/w4893
L1  - http://www.nber.org/papers/w4893.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu
AB  - The intertemporal approach views the current-account balance as the outcome of forward-looking dynamic saving and investment decisions.  This paper, a chapter in the forthcoming third volume of the Handbook of International Economics, surveys the theory and empirical work on the intertemporal approach as it has developed since the early 1980s.  After reviewing the basic one-good, representative- consumer model, the paper considers a series of extended models incorporating relative prices, complex demographic structures, consumer durables, asset-market incompleteness, and asymmetric information.  We also present a variety of empirical evidence illustrating the usefulness of the intertemporal approach, and argue that intertemporal models provide a consistent and coherent foundation for open-economy policy analysis.  As such, the intertemporal approach should supplant the expanded versions of the Mundell-Fleming IS-LM model that currently furnish the dominant paradigm used by central banks, finance ministries, and international economic agencies.
ER  -