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Chapter 13
International Trade in Assets
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Current account analysis
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Small open economy
Two period model with investment
Current account
Effect on current account
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Revisit Current Account
National saving is GNP minus consumption
minus gov’t spending
S = Sp+ Sg= Y + NFP – C – G
Using Y = C + I + G + NX, we have ‘
S = I + NX + NFP
Defining the current account surplus:
S = I + CA
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Figure 13.10 Deviations from
Trend in the Current Account
Surplus and GDP
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Figure 13.12 The Twin Deficits
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Figure 13.11 Government
Spending and Taxes
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Small open economy
• Combine the closed economy with world
interest rate
• Interest rate in SOE is world interest rate
• Yd=C+I+G+NX
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Figure 13.13 A Small OpenEconomy Model with Production
and Investment
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Figure 13.14 An Increase in
the World Real Interest Rate
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An Increase in the World Real
Interest Rate
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CA increase
Y increase
I decrease
C?
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Figure 13.15 A Temporary
Increase in Government
Spending
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Figure 13.17 An Increase in
Current Total Factor
Productivity
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Figure 13.18 An Increase in
Future Total Factor
Productivity
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Figure 13.19 Investment as a
Percentage of GDP
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