Modeling the U.S. Current Account as the Savings-Investment Balance: Technical Paper 2002-5

This paper derives and estimates a current account model from the perspective that the current account balance is the difference between national savings and investment. This approach allows us to include determinants of savings, investment, and capital flows to explain and forecast the evolution of the current account, an advantage not offered by the elasticity approach, which views the current account balance as the sum of net exports and net investment income. The savings-investment approach shows that the three traditional variables the real exchange rate, domestic activities, and foreign