TY - JOUR AU - Kraay,Aart AU - Ventura,Jaume TI - Current Accounts in the Long and Short Run JF - National Bureau of Economic Research Working Paper Series VL - No. 9030 PY - 2002 Y2 - June 2002 DO - 10.3386/w9030 UR - http://www.nber.org/papers/w9030 L1 - http://www.nber.org/papers/w9030.pdf N1 - Author contact info: Aart Kraay The World Bank Group Mail Stop MC3-301 1818 H Street NW Washington, DC 20433 Tel: 202 473-5756 Fax: 202 522-3518 E-Mail: AKraay@worldbank.org Jaume Ventura CREI Universitat Pompeu Fabra Ramon Trias Fargas, 25-27 08005-Barcelona SPAIN Tel: +34 93 542 1765 Fax: +34 93 542 1860 E-Mail: jventura@crei.cat AB - Faced with income fluctuations, countries smooth their consumption by raising savings when income is high, and vice versa. How much of these savings do countries invest at home and abroad? In other words, what are the effects of fluctuations in savings on domestic investment and the current account? In the long run, we find that countries invest the marginal unit of savings in domestic and foreign assets in the same proportions as in their initial portfolio, so that the latter is remarkably stable. In the short run, we find that countries invest the marginal unit of savings mostly in foreign assets, and only gradually do they rebalance their portfolio back to its original composition. This means that countries not only try to smooth consumption, but also domestic investment. To achieve this, they use foreign assets as a buffer stock. ER -