Macroeconomic Uncertainty, Precautionary Savings and the Current Account
Summary:
The relationship between current account developments and changes in the macroeconomic environment remains a key issue in open economy macroeconomics. This paper extends the standard intertemporal optimizing model of the current account to incorporate the effects of macroeconomic uncertainty on private savings behavior. It is shown that the greater the uncertainty in national cash flow, defined as output less investment less government expenditure, the greater is the precautionary demand for savings and, other things equal, the larger is the current account surplus. Empirical support for the model is found using quarterly data from four large industrial countries.
Series:
Working Paper No. 1992/072
Subject:
Balance of payments Consumption Currencies Current account Current account surpluses Income Money National accounts
English
Publication Date:
September 1, 1992
ISBN/ISSN:
9781451959048/1018-5941
Stock No:
WPIEA0721992
Pages:
44
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