Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153329
Authors: 
Ca' Zorzi, Michele
Rubaszek, Michał
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 895
Abstract: 
In this paper we present a novel approach to the empirical validation of the intertemporal approach to the current account. We develop a calibrated model highlighting the role of consumption smoothing and capital accumulation in the economic convergence process. After solving the model, we derive the theoretical values for the euro area countries’ current account, testing to what extent they match reality. The model explains most of the dispersion in the current account and saving ratio, though cannot equally well capture differences in the investment ratios. The conclusion that we draw is that consumption smoothing, based on expectations of economic convergence, is driving the current account of the euro area countries over medium-term horizons. Capital accumulation appears to play a less pronounced role.
Subjects: 
current account
euro area
General equilibrium models
intertemporal optimisation
JEL: 
D91
F36
F41
Document Type: 
Working Paper

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