australia current account
the intertemporal model is the reduction in the variance ratio of the estimated actual (CA^sub
t^) and estimated optimal consumption-smoothing (CA^sub t^^sup *^ ) current accounts between the early and later subsamples (from 3.499 to 2.965).23 This
`excess volatility' implies that capital flows to and from Australia have been more volatile than would be justified by expected changes in national cash flows.
Figure 1 shows that in the early subsample, when the excess volatility in the current account is the greatest, the actual current account balance (as a ratio to GDP)
is consistently higher than the optimal current account balance (as a ratio to GDP).24 The excess volatility in the early subsample seems to stem from the need for
the actual current account deficit to return to a zero balance, due to the presence of capital controls. In the later subsample, the actual current account path
criss-crosses the optimal current account path.25
The results from the consumption-smoothing model reveal that there was excessive net national savings prior to the liberalization of capital controls in the early