The Role of Stock Markets in Current Account Dynamics: a Time-Series Approach
March 1, 2004
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Summary
This paper develops a simple model to study the impact of stock markets on the current account. A closed-form solution for the current account is derived from the optimal portfolio and consumption/saving choices of a representative agent. Formally, the model can be seen as a stock market-augmented version of the "fundamental equation of the current account" popularized by Jeffrey Sachs. It appears to shed light on recent developments in the U.S. current account deficit. The model also shows how the current account may help predict future stock market performance and/or endowment streams.
Subject: Current account, Current account deficits, Futures markets, Stock markets, Stocks
Keywords: stock market boom, WP
Pages:
30
Volume:
2004
DOI:
Issue:
050
Series:
Working Paper No. 2004/050
Stock No:
WPIEA0502004
ISBN:
9781451847000
ISSN:
1018-5941
