Saving, investment and the current account : A review of recent evidence

Abstract

This paper investigates the determination of the current account. In particular, the role of aggregate saving shocks is analyzed using the saving-investment approach as a general frame of reference. Emphasis is paid to testing the Ricardian equivalence proposition. Testing is carried out using cross-section data from 52 countries. Empirical results are clearly at variance with the Ricardian approach. By contrast, the results demonstrate the importance of persistence effects as well as traditional life-cycle model effects.