Working Paper: NBER ID: w0796
Authors: Jeffrey Sachs
Abstract: This paper provides a formal analysis of the current account balance in a dynamic model with optimizing agents. Two analytical ideas are stressed. First, an economy's current account balance depends as much on fixture economic trends as on the current economic environment. A shift in fiscal policy, for example, will have one effect on the current account if it is perceived to be temporary and another if it is seen to be permanent. Second, temporary disturbances in the economy have permanent effects, by altering the entire future path of the economy's international indebtedness.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal policy (E62) | Current account balance (F32) |
| Future economic expectations (E66) | Current account balance (F32) |
| Temporary disturbances (E32) | Future path of international indebtedness (F34) |
| Temporary disturbances (E32) | Consumption behavior (D10) |
| Temporary disturbances (E32) | Investment behavior (G11) |
| Current income is low relative to permanent income (D15) | Current account deficits (F32) |
| Divergences in rate of return to savings and time preference (D15) | External imbalances (F32) |