Consumption Smoothing and the Current Account: Evidence for France, 1970-1994

Author/Editor:

Claude Bismut ; Paul Cashin ; C. John McDermott ; Pierre-Richard Agénor

Publication Date:

November 1, 1995

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:

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.

Series:

Working Paper No. 1995/119

Subject:

Balance of payments Consumption Consumption distribution Currencies Current account Current account balance Money National accounts

English

Publication Date:

November 1, 1995

ISBN/ISSN:

9781451940237/1018-5941

Stock No:

WPIEA1191995

Pages:

18

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