In this paper I consider the interactions between the internal structure of the economy and its external balance. In an intertemporal set-up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates. The incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities, the composition of government spending and its timing.
|Number of pages||18|
|Journal||European Economic Review|
|State||Published - 1984|