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TEST OF INTER-TEMPORAL MODEL OF CURRENT ACCOUNT: EVIDENCE FROM THE CZECH REPUBLIC, HUNGARY, POLAND AND SLOVAKIA

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Pošta V.
Ekonomický časopis (Journal of Economics)
|
2013
|
vol. 61
|
issue 9
897 – 917
EN
A current account may be viewed as an indicator of an imbalance between savings and investments in an economy. One of the key issues is the degree to which consumption is sensitive to actual temporary changes in current income. Modern inter-temporal approach builds on permanent income hypothesis, which concludes that the sensitivity of consumption (and savings) to temporary changes in income is low. The paper formulates a simple inter-temporal model of current account and employs the present value test of the model in the cases of the Czech Republic, Hungary, Poland and Slovakia. It further focuses on the role of habits in modelling current accounts. The results show that a simple inter-temporal model has some descriptive power, especially in the case of the Czech Republic, but overall it gives rather poor results. It is the assumption that the economy consists strictly of Ricardian agents that seems to be the main reason behind the empirical failure.
2

THE EFFECT OF LABOR PRODUCTIVITY ON REAL EXCHANGE RATE: EVIDENCE FROM CZECH REPUBLIC, HUNGARY, POLAND AND SLOVAKIA

100%
Pošta V.
Ekonomický časopis (Journal of Economics)
|
2010
|
vol. 58
|
issue 7
657-676
EN
The paper builds on an inter-temporal model of an open economy to formulate the hypothesis of the dependence of real exchange rate on labour productivity. The model is formulated under those assumption on which rests the Balassa-Samuelson theorem. The hypothesis is tested using co-integration technique and vector error correction model. Usually, testing the Balassa-Samuelson effect gives mixed results, sometimes finding the opposite reaction of the real exchange rate to the one predicted by the Balassa-Samuelson theorem, pointing to the restrictive nature of the assumptions on which it is based. The analysis shows a little supportive evidence for the Balassa-Samuelson effect. However, according to the analysis the effect of labour productivity on the real exchange rate can hardly be considered as clear-cut as predicted by the Balassa-Samuelson theorem.
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