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Intertemporal price speculation and the optimal current-account deficit: a comment

Article Abstract:

Maurice Obstfeld is wrong in his assertion that a transitory terms of trade deterioration would result into a current account deficit emerging during the period of the shock for a small open economy beginning from a steady state with a balanced current account. The only conditions which are required for a current deficit are an intertemporal elasticity of substitution which is greater than unity, a non-positive initial asset position and no domestic consumption of the exportable. Obstfeld's results is true only if the focus is on the trade account.

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International risk sharing and capital mobility: another look

Article Abstract:

The calculations of estimated welfare loss in relation to welfare benefits of risk sharing in Organization for Economic Cooperation and Development economies was found to be faulty. The calculations indicated a welfare loss of four to eight percent. Modifications were made to correct the faulty analysis and new computations were made which were verified using another method of calculation. Explanations concerning the reasons for the faulty analysis were presented.

Research, Models, Economic aspects, Risk (Economics), Welfare economics, Capital movements, Utility theory, Utility functions

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Intertemporal price speculation and the optimal current-account deficit: reply and clarification

Article Abstract:

An economy which is negatively affected by a temporary change in its terms of trade always incurs a temporary current-account deficit regardless of whether the change is large or minimal. Temporary increases in relative export prices always result into surpluses. These results can be derived from an analysis that shows how temporary terms-of-trade shocks affect the consumption-based real interest rate on external debt and therefore, the current account.

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