Working Paper: NBER ID: w0859
Authors: Jeffrey Sachs
Abstract: This essay examines some aspects of capital flows within the OECD, and outlines a framework for analyzing current account movements. In both the theoretical and empirical sections, I argue for the importance of including investment and growth in analyses of the current account. I present empirical evidence confirming that shifts in investment rates explain a large part of recent OECD current account behavior. In addition, the links in theory and practice between exchange rates and the current account are scrutinized. A link between current account deficits and depreciation is evident for the large OECD economies, but not for many smaller European economies. It appears that the exchange rate behavior in the smaller economies can be explained by specific exchange rate policies in these economies.
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 |
|---|---|
| Current account deficits (F32) | Exchange rate policies (F31) |
| National savings rates (D14) | Current account shifts (F32) |
| Investment rates (G31) | Current account balance (F32) |
| Investment rates (G31) | Foreign capital inflows (F21) |
| Exchange rate depreciation (F31) | Current account balance (F32) |