The Intertemporal Approach to the Current Account: Evidence for Chile

Sergio A. Salas Landeau

Abstract


This paper studies the existence of "excess" current-account imbalances in Chile in the 1960-1999 period. This phenomenon is modelled using present value tests that allow for variable interest rates and exchange rate fluctuations. Despite its simplicity, most of the observed imbalances in the current account are accounted for by the model. Results suggest that using models where agents behave as forward-looking rational agents, is a valid framework. Moreover, the analysis highlights the rel-evance of variable interest rates and exchange rates. Results also imply that capital controls, that were widely used in the period under study, were not effective.

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