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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Investment and the Current Account in the Short Run and the Long Run
James M. Nason and John H. Rogers
1999-647  (October 1999)

Abstract:  Theoretical models of the relationship between investment and the current account impose restrictions on the joint dynamic behavior of these variables. These restrictions come in two forms. One imposes causal orderings on investment and the current account. The other restriction concerns the permanent responses of these variables to different shocks. We use these restrictions to identify empirically structural shocks from vector autoregressions of investment and the current account for Canada. Under certain identifications, our results support the implications of the intertemporal, small open economy model. However, these results are sensitive to perturbations of the identifications.

Full paper (1256 KB PDF)

Keywords
Small Open Economy, Intertemporal Model, Identification

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Last update: July 19, 2001