Analysis Of Changes In Current Account

For a long time, the persistent current account surplus is a problem that bothers China’s sustained and healthy economic development, but since the international financial crisis in2008, the upward trend of China’s current account surplus has been curbed. Whether this change of the current account surplus is caused by structural changes in our economy or merely the result of changes in the global economic cycle, the Chinese and foreign scholars have different view on the issue.This paper established an intertemporal equilibrium model, analyzed the long-term determination of net foreign assets and its short-term adjustment mechanisms, it also analyzed consumer behavior effects on the stability of the China’s current account.This article first created an infinite life cycle of inter-generational iteration model, exploring the long-term decision of a country’s net foreign assets, as well as short-term feedback mechanism. According to the model, the long-run equilibrium of a country’s net foreign assets is proportional to the income level of the country, and is inversely proportional to government spending. It’s also affected by the impact of the capital stock and the level of government debt. The stability of the short-term feedback mechanism depends on the consumer tilt factors. Due to the assumption of the model, the change in net foreign assets equals to the current account, the short-term adjustment mechanism of the net foreign assets actually reflects the stability of the change in the path of the current account.The article accomplished an empirical test of the stability of the changes in China’s current account. Since1979, there exists long-term cointegration relationship between the accumulation of net foreign assets caused by current account, income levels, government spending, capital stock and government debt, but the short-term adjustment mechanism of net foreign assets is unstable. Finally, the appropriate policies are recommended.