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Current accounts in debtor and creditor countries, Volume 1
 
Author:Kraay, Aart; Ventura, Jaume; Date Stored:2001/04/21
Document Date:1997/09/30Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Payment Systems & Infrastructure; Banks & Banking Reform; Fiscal & Monetary Policy; Financial IntermediationLanguage:English
Major Sector:(Historic)Economic PolicyReport Number:WPS1825
Sub Sectors:Macro/Non-TradeCollection Title:Policy, Research working paper ; no. WPS 1825
Volume No:1  

Summary: The authors reexamine a classic question in international economics: What is the current account response to a transitory income shock such as a temporary improvement in the terms of trade, a transfer from abroad, or unusually high production? To answer this question, they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities. Despite its conventional ingredients, the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries. Evidence from thirteen OECD countries broadly supports this theoretical prediction.

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