Recent studies have challenged the standard version of the intertemporal approach to the current account. According to the new rule, the impact of transitory income shocks on the current account is equal to the saving generated by the shock multiplied by the country's share of foreign assets in...

A good deal of time has been devoted to whether more open economies have bigger governments (compensation hypothesis) or smaller ones (efficiency hypothesis). However, most of the research has been focused mainly on trade openness, which is clearly restrictive in a world with increasingly...

This paper provides an extension of the new rule for the current account [Kraay and Ventura (2000)], abandoning the small open economy assumption: the response of transitory income shocks on the current account is equal to the new rule (savings generated by the shock multiplied by the domestic...