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| Author: | Ventura, J |
| Title: | Towards a Theory of Current Accounts |
| Journal: | World Economy
2003 : APR, VOL. 26:4, p. 483-512 |
| Index terms: | ACCOUNTS THEORIES MODELS FINANCE ECONOMICS |
| Language: | eng |
| Abstract: | The author examines the theory of current accounts noting that the received theory can not explain why savings are highly correlated with investment both in the long and the short run. The author introduces two new elements to the basic model to make it reconcilable with these observed patterns. There are investment risks and adjustment costs. With this extension, the basic model predicts that country portfolios tend to be stable. It also provides an accurate picture of the joint behavior of savings, investments and the current accounts. The author follows Corden's typical approach in making a simple extension to a theoretical model in order to answer a basic policy question. |
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