Consumption Smoothing and the Current Account: Evidence for France, 1970-94.
by
Pierre-Richard Agenor, Claude Bismut, Paul Cashin and C. John McDermott.
May 1996
Department of Economics. University of Melbourne. Parkville Victoria
3052 Australia
ABSTRACT
This paper estimates a simple consumption-smoothing model of the French
current account, and examines its capacity to predict recent developments
in France's external performance. The model views the current account as
a buffer through which private agents can smooth consumption over time
in response to temporary disturbances to output, investment, and government
expenditure. The empirical results indicate that the model performs well
overall, and predicts correctly the sharp turnaround in France's external
accounts observed in the past three years--a feature of the data that conventional
models of trade flows, based on income and relative price variables, appear
unable to explain.
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