The Current Account In The Long Run Through The Intertemporal Model

This paper analyses the current account in the intertemporal model framework. Based on Obstfeld and Rogoff’s book (1996), we aim to model the ratio of the current account to GDP explicitly in the long run. Also, we criticize the tautological approach in the paper of Cerrato et al. (2015) which adopt an algebraic definition that the output growth is the sum of the population growth and the per-capita GDP growth. Limited by this definition, the result leads to the identical equation of the ratio current account to GDP expressed by level or per capita. In this paper, we consider the overlapping generations to determine precisely the equation of the per-capita current account using the relevant variables. Then, this model appears more interesting and testable. It allows to verify the validity of the intertemporal model of the current account through the semi-elasticity of the ratio of per-capita current account to the per-capita GDP to the per-capita GDP growth or the per-capita consumption growth.