Interest Rates , Exchange Rates and Present Value Models of the Current Account

@inproceedings{BerginInterestR,
  title={Interest Rates , Exchange Rates and Present Value Models of the Current Account},
  author={Paul R. Bergin and Steven M. Sheffrin}
}
  • Paul R. Bergin, Steven M. Sheffrin
This paper develops a testable intertemporal model of the current account that allows for variable interest rates and exchange rates. These additional variables are channels through which external shocks may in ̄uence the domestic current account. The restrictions from the theoretical model are subjected to present value tests using quarterly data from three small open economies. The paper ®nds that including the interest rate and exchange rate improves the ®t of the intertemporal model over… CONTINUE READING
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