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Title: |
The Behavior of the Current Account in Response to Unobservable and
Observable Shocks |
| Author: |
Irandoust,
Manuchehr; Sjoo, Boo |
| Author
Affiliation: |
U Orebro;
McGill U and U College of Skovde |
| Source: |
International Economic Journal, Winter 2000, v. 14, no. 4, pp. 41-57 |
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Publication Date: |
Winter 2000 |
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Abstract: |
The intertemporal approach to the balance
of payments states that nonstationary flows in the current account will
cointegrate or cotrend, unless there are permanent productivity shocks
or long-run policy distortions. This paper examines the dynamics of the
current account for a small open economy, using data from Sweden. The
results show borderline cointegration for the current account. Recursive
estimates disclose that there is no stable tendency towards finding
cointegration. Cointegration is found for the first part of the sample,
but from 1990 the cointegration test performs badly until speculative
attacks force Sweden to give up the peg of the krona in 1992. In terms
of the intertemporal approach, policy could be creating the imbalance,
solved with the depreciation in 1992, after which the external accounts
gradually move back to long-run equilibrium. |
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