Hostname: page-component-7dd5485656-hw7sx Total loading time: 0 Render date: 2025-11-03T01:51:40.391Z Has data issue: false hasContentIssue false
  • English
  • Français

THE ROLE OF TWO INTEREST RATES IN THE INTERTEMPORAL CURRENT ACCOUNT MODEL

Published online by Cambridge University Press:  04 April 2012

Michał Rubaszek
Michał Rubaszek*
Affiliation:
Economic Institute, National Bank of Poland and Econometric Institute, Warsaw School of Economics
*
Address correspondence to: Michał Rubaszek, National Bank of Poland, Swietokrzyska Street 11/21, 00-919 Warsaw, Poland; e-mail: michal.rubaszek@nbp.pl.
Get access Rights & Permissions [Opens in a new window]

Abstract

We analyze the role of the lending-deposit interest rate spread in the dynamics of the current account in developing countries. For that purpose, we extend the standard perfect-foresight intertemporal model of the current account for the existence of the interest rate spread and simulate the convergence path of developing economies. This model helps explain why in many cases it is optimal for a fast-growing, low-income country to run a balanced current account.

Keywords

Intertemporal Current AccountFinancial Market ImperfectionsEconomic Convergence

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S2: Time-Varying Modeling with Macroeconomic and Financial Data , September 2012 , pp. 176 - 189
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Benigno, Pierpaolo (2009) Price stability with imperfect financial integration. Journal of Money, Credit and Banking 41 (s1), 121–149.CrossRefGoogle Scholar
Bergin, Paul R. (2003) Putting the “New Open Economy Macroeconomics” to a test. Journal of International Economics 60 (1), 3–34.CrossRefGoogle Scholar
Bergin, Paul R. (2006) How well can the New Open Economy Macroeconomics explain the exchange rate and current account? Journal of International Money and Finance 25 (5), 675–701.CrossRefGoogle Scholar
Bergin, Paul R. and Sheffrin, Steven M. (2000) Interest rates, exchange rates and present value models of the current account. Economic Journal 110 (463), 535–558.CrossRefGoogle Scholar
Blanchard, Olivier and Giavazzi, Francesco (2002) Current account deficits in the euro area: The end of the Feldstein Horioka puzzle? Brookings Papers on Economic Activity 33 (2), 147–210.CrossRefGoogle Scholar
Buiter, Willem H. (1981) Time preference and international lending and borrowing in an overlapping-generations model. Journal of Political Economy 89 (4), 769–97.CrossRefGoogle Scholar
Bussiere, Matthieu, Fratzscher, Marcel, and Müller, Gernot J. (2004) Current Account Dynamics in OECD and EU Acceding Countries—An Intertemporal Approach. Working paper series 311, European Central Bank.CrossRefGoogle Scholar
Campbell, John Y. (1987) Does saving anticipate declining labor income? An alternative test of the Permanent Income Hypothesis. Econometrica 55 (6), 1249–1273.CrossRefGoogle Scholar
Ca' Zorzi, Michele and Rubaszek, Michal (2008) On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries. Working paper series 895, European Central Bank.Google Scholar
Chinn, Menzie D. and Prasad, Eswar S. (2003) Medium-term determinants of current accounts in industrial and developing countries: An empirical exploration. Journal of International Economics 59 (1), 47–76.CrossRefGoogle Scholar
Cúrdia, Vasco and Woodford, Michael (2009) Credit Spreads and Monetary Policy. NBER working paper 15289.CrossRefGoogle Scholar
Fagan, Gabriel and Gaspar, Vítor (2007) Adjusting to the Euro. Working paper series 716, European Central Bank.CrossRefGoogle Scholar
Faruqee, Hamid and Debelle, Guy (1996) What Determines the Current Account? A Cross-Sectional and Panel Approach. IMF working paper 96/58.CrossRefGoogle Scholar
Feldstein, Martin and Horioka, Charles (1980) Domestic saving and international capital flows. Economic Journal 90 (358), 314–329.CrossRefGoogle Scholar
Fisher, Irving (1930) The Theory of Interest. New York: Macmillan.Google Scholar
Gerali, Andrea, Neri, Stefano, Sessa, Luca, and Signoretti, Federico M. (2010) Credit and banking in a DSGE model of the euro area. Journal of Money, Credit and Banking 42 (s1), 107–141.CrossRefGoogle Scholar
Gruber, Joseph W. (2004) A present value test of habits and the current account. Journal of Monetary Economics 51 (7), 1495–1507.CrossRefGoogle Scholar
Hassin, Rafael and Lieber, Zvi (1982) Optimal consumption with a stochastic income stream and two interest rates. Southern Economic Journal 49, 482–493.CrossRefGoogle Scholar
Hayashi, Fumio (1982) Tobin's marginal q and average q: A neoclassical interpretation. Econometrica 50 (1), 213–224.CrossRefGoogle Scholar
Ho, Thomas S.Y. and Saunders, Anthony (1981) The determinants of bank interest margins: Theory and empirical evidence. Journal of Financial and Quantitative Analysis 16 (04), 581–600.CrossRefGoogle Scholar
Lane, Philip R. and Milesi-Ferretti, Gian Maria (2001) The external wealth of nations: Measures of foreign assets and liabilities for industrial and developing countries. Journal of International Economics 55 (2), 263–294.CrossRefGoogle Scholar
Lau, Morten I., Pahlke, Andreas, and Rutherford, Thomas F. (2002) Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis. Journal of Economic Dynamics and Control 26 (4), 577–609.CrossRefGoogle Scholar
Nason, James M. and Rogers, John H. (2006) The present-value model of the current account has been rejected: Round up the usual suspects. Journal of International Economics 68 (1), 159–187.CrossRefGoogle Scholar
Nehru, Vikram and Dhareshwar, Ashok (1993) A new database on physical capital stock: Sources, methodology and results. Revista de Analisis Economica 8 (1), 37–59.Google Scholar
Obstfeld, Maurice and Rogoff, Kenneth (1996) The Intertemporal Approach to the Current Account. NBER working paper 4893.Google Scholar
Rajan, Raghuram G. and Zingales, Luigi (1998) Financial dependence and growth. American Economic Review 88 (3), 559–86.Google Scholar
Roeger, Werner and Veld, Jan in 't (2004) Some selected simulation experiments with the European Commission's QUEST model. Economic Modelling 21 (5), 785–832.CrossRefGoogle Scholar
Sachs, Jeffrey D. (1981) The current account and macroeconomic adjustment in the 1970s. Brookings Papers on Economic Activity 12 (1), 201–282.CrossRefGoogle Scholar
Saunders, Anthony and Schumacher, Liliana (2000) The determinants of bank interest rate margins: An international study. Journal of International Money and Finance 19 (6), 813–832.CrossRefGoogle Scholar
Sheffrin, Steven M. and Woo, Wing Thye (1990) Present value tests of an intertemporal model of the current account. Journal of International Economics 29 (3–4), 237–253.CrossRefGoogle Scholar
Singh, Tarlok (2007) Intertemporal optimizing models of trade and current account balance: A survey. Journal of Economic Surveys 21 (1), 25–64.CrossRefGoogle Scholar
Smets, Frank and Wouters, Rafael (2007) Shocks and frictions in US business cycles: A Bayesian DSGE approach. American Economic Review 97 (3), 586–606.CrossRefGoogle Scholar
Watkins, Thayer H. (1969) Borrowing–Lending Interest Rate Differentials and the Time Allocation of Consumption. Cowles Foundation discussion paper 282, Yale University.Google Scholar