Current Account Dynamics in OECD Countries and in the New EU Member States: An Intertemporal Approach |
Matthieu Bussière, Marcel Fratzscher, Gernot J. Müller |
European Central Bank |
Copyright ©2006 Journal of Economic Integration |
ABSTRACT |
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This paper investigates the large current account deficits observed in most new EU member states using an intertemporal model. The standard model is extended to include: (1) the persistence of current account positions and (2) the relevance of the fiscal balance. Specifically, a closed form solution for consumption in the presence of habit persistence and liquidity constraints is derived, yielding a dynamic model for the current account where fiscal deficits have an effect. The model is estimated for a panel of 33 countries. A key finding is that current accounts in most new EU member states are broadly in line with their structural current account positions. JEL Classifications: F32, F41 |
Keywords:
Current account | Habit persistence | Liquidity constraint | Transition economies
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