Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152745
Authors: 
Bussière, Matthieu
Fratzscher, Marcel
Müller, Gernot J.
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 311
Abstract: 
The paper extends the standard intertemporal model of the current account to include two important stylised facts: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, the paper derives a closed form solution for consumption in the presence of habit persistence and liquidity constraints, which allows us to obtain a dynamic model for the current account where fiscal deficits have an effect. The model is estimated for a panel of 33 countries, including the ten EU acceding countries and structural current account positions are derived. A parsimonious specification including relative income, relative investment and the fiscal balance explains well past current account developments. A key finding of the paper is that, from an intertemporal perspective, current accounts in most acceding countries are currently broadly in line with their structural current account positions.
Subjects: 
current account
habit persistence
liquidity constraints
panel
JEL: 
F32
F41
Document Type: 
Working Paper

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