This paper extends the analytical framework provided by Glick and Rogoff (JME 1995) to an economy with traded and nontraded goods, and it analyzes the impact of country-specific and global productivity shocks on the current account and investment that are largely consistent with the empirical...

The present value tests of intertemporal model of the current account usually assume that all goods are traded and that aggregate consumption decisions can be closely approximated by a random walk process. This paper extends these models by explicitly introducing durables and nontraded goods...