1. In the intertemporal approach to the current account, what are the shocks
which matter? Why is it important whether they are temporary or permanent?
2. When and why will countries’ consumption growth rates be perfectly
correlated? Is the hypothesis of perfect correlation supported empirically?
3. What effect does incompleteness of international asset markets have on
4. “The current account balance is equal to the gap between national saving and
investment, so a fiscal deficit – which is a reduction in government saving –
will obviously worsen the current account deficit.” Discuss whether this is true,
both theoretically and empirically.
5. In what sense does the ‘monetary’ model say that the exchange rate is
determined by the ‘present value’ of current and future macroeconomic
‘fundamentals’? Discuss how this result assumes the absence of speculative