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THE ROLE OF TWO INTEREST RATES IN THE INTERTEMPORAL CURRENT ACCOUNT MODEL

Published online by Cambridge University Press:  04 April 2012

Michał Rubaszek
Michał Rubaszek*
Affiliation:
Economic Institute, National Bank of Poland and Econometric Institute, Warsaw School of Economics
*
Address correspondence to: Michał Rubaszek, National Bank of Poland, Swietokrzyska Street 11/21, 00-919 Warsaw, Poland; e-mail: michal.rubaszek@nbp.pl.
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Abstract

We analyze the role of the lending-deposit interest rate spread in the dynamics of the current account in developing countries. For that purpose, we extend the standard perfect-foresight intertemporal model of the current account for the existence of the interest rate spread and simulate the convergence path of developing economies. This model helps explain why in many cases it is optimal for a fast-growing, low-income country to run a balanced current account.

Keywords

Intertemporal Current AccountFinancial Market ImperfectionsEconomic Convergence
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S2: Time-Varying Modeling with Macroeconomic and Financial Data , September 2012 , pp. 176 - 189
Copyright
Copyright © Cambridge University Press 2012

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