Consumption smoothing and the current account: evidence for Mexico, 1980 - 2005

Resumen

This paper estimates a simple consumption-smoothing model of the Mexican current account for the period 1980-2005. The model incorporates the expectations of intertemporal consumption distribution in response by private agents to disturbances in output, investment and government expenditure. The empirical results predicts the flow of the current account even during the 1982 and 1994 crisis, although the capital controls present at the time proved limiting to the ability of domestic residents to engage in international borrowing and lending.