TY  - JOUR
AU  - Kraay,Aart
AU  - Ventura,Jaume
TI  - Current Accounts in the Long and Short Run
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9030
PY  - 2002
Y2  - June 2002
UR  - http://www.nber.org/papers/w9030
L1  - http://www.nber.org/papers/w9030.pdf
N1  - Author contact info:
Aart Kraay
The World Bank Group
Mail Stop MC3-301
1818 H Street NW
Washington, DC 20433
Tel: 202 473-5756
Fax: 202 522-3518
E-Mail: AKraay@worldbank.org

Jaume Ventura
CREI
Universitat Pompeu Fabra
Ramon Trias Fargas, 25-27
08005-Barcelona
SPAIN
Tel: +34 93 542 1765
Fax: +34 93 542 1860
E-Mail: jventura@crei.cat
AB  - Faced with income fluctuations, countries smooth their consumption by raising savings when income is high, and vice versa. How much of these savings do countries invest at home and abroad? In other words, what are the effects of fluctuations in savings on domestic investment and the current account? In the long run, we find that countries invest the marginal unit of savings in domestic and foreign assets in the same proportions as in their initial portfolio, so that the latter is remarkably stable. In the short run, we find that countries invest the marginal unit of savings mostly in foreign assets, and only gradually do they rebalance their portfolio back to its original composition. This means that countries not only try to smooth consumption, but also domestic investment. To achieve this, they use foreign assets as a buffer stock.
ER  -