Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197708
Authors: 
Shibata, Akihisa
Shintani, Mototsugu
Tsuruga, Takayuki
Year of Publication: 
2018
Series/Report no.: 
ISER Discussion Paper No. 1036
Abstract: 
The current account in developed countries is highly persistent and volatile in comparison to output growth. The standard intertemporal current account model with rational expectations (RE) fails to account for the observed current account dynamics together with persistent changes in consumption. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for persistent changes in consumption, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income and infrequently adjust their consumption. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility almost fully explains current account dynamics and the persistence of changes in consumption, if high degrees of information rigidity and imperfect capital mobility are taken into account.
Subjects: 
Capital mobility
Imperfect information
Inattentiveness
Permanent income hypothesis
JEL: 
E21
F21
F32
F41
Document Type: 
Working Paper

Files in This Item:
File
Size
406.47 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.