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Handbook of Safeguarding Global Financial Stability by Gerard Caprio

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Chapter 12

Intertemporal Approach to the Current Account

P.R. Bergin

University of California at Davis, Davis, CA, USA

Outline

A country’s current account balance with the rest of the world can be understood as a reflection of the optimal saving decisions of its residents. This intertemporal theory posits that the current account is driven by the desire to smooth consumption over time in response to random shocks to income. The ...

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