because the information necessary is already reflected in the current account. This is based on
Campbell and Shiller’s (1987) work on savings and income.
We estimate unrestricted bivariate vector auto regression (VAR) of changes in national cash
flow and the actual consumption smoothing current account given by the following
δ Zt
cat
a ( L ) b ( L ) Jδ Zt-1
c ( L ) d ( L ) ɪ cat-1
(7)
where ∆zt =∆( qt - it - gt ) is the change in national cash flow, cat is the actual consumption
smoothing current account which equals yt - it - gt - θct (analogous to equation (5) of the
optimal current account), a (L), b (L), c (L) and d (L) are polynomials in the lag operator of order p,
and u 11 and u21 are errors with a conditional mean of zero.
(8)
|
■ |
■a 1 1 |
0 |
ap b1 ...... |
. bP ~ |
■ u 1, 1 | |||
|
M |
0 |
1 |
0 L |
L0 |
M | |||
|
b V where X, = t |
cazt-p+ |
, ψ= |
≡ c1 |
0 |
O 0 c d 1 |
M Ld Lp |
and vt = |
M u 21 |
|
: |
0∙ |
... |
l0 1 |
0L 0 |
0 | |||
|
: |
0 |
.. |
. L 0 |
1L 0 |
m | |||
|
_ cat - p+1 _ |
_m |
0 |
O 0 |
M _ |
Lm J |
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