Consumption smoothing and the current account: evidence for France, 1970-1996

This paper estimates a simple consumption-smoothing model of the French cur rent account, and examines its capacity to predict recent developments in F rance's external performance. The model views the current account as a buff er through which private agents can smooth consumption over time in respons e to temporary disturbances to output, investment, and government expenditu re. The empirical results indicate that the model performs well overall, an d predicts correctly the sharp turnaround in France's external accounts obs erved in the past 3 years - a feature of the data that conventional models of trade flows, based on income and relative price variables, appear unable to explain. (C) 1999 Elsevier Science Ltd. All rights reserved.