Current account dynamics in a finite horizon model

Kiminori Matsuyama*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

67 Scopus citations


This paper examines the response of the current account in a small open economy to a permanent change in the price of imported intermediate goods. To do so, it extends Blanchard's (1985) open economy model to incorporate the capital stock with adjustment costs à la Hayashi (1982). A price increase in imported intermediate goods can be viewed as a combination of transfer payments abroad and capital taxation. The former effect leads to a current account deficit and the latter leads to a current account surplus. The overall effect depends on the relative magnitude of these effects.

Original languageEnglish (US)
Pages (from-to)299-313
Number of pages15
JournalJournal of International Economics
Issue number3-4
StatePublished - Jan 1 1987

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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