Capital accumulation and the current account in a two-country model

Michael B. Devereux, Shouyong Shi

Research output: Contribution to journalArticle

53 Scopus citations

Abstract

This paper examines the joint determination of international debt and capital accumulation in a two-country model. National rates of time preference are endogenous, adjusting along an optimal path to come into equality with one another in the steady state. The characteristics of short-run current account dynamics are crucially linked to world capital accumulation and to a country's long-run net external asset position. Steady-state creditor countries tend to have current account surpluses during episodes of world output growth and vice versa for debtor countries. This gives rise to possible non-monotonic adjustment in the current account and consumption.

Original languageEnglish (US)
Pages (from-to)1-25
Number of pages25
JournalJournal of International Economics
Volume30
Issue number1-2
DOIs
StatePublished - Jan 1 1991

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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