Macroeconomic Uncertainty, Precautionary Savings and the Current Account

Author/Editor:

Jonathan David Ostry ; Atish R. Ghosh

Publication Date:

September 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 92/72

Subject:

English

Publication Date:

September 1, 1992

ISBN/ISSN:

9781451959048/1018-5941

Stock No:

WPIEA0721992

Format:

Paper

Pages:

44

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