Modeling the Balance of Payment Development by the Intertemporal Approach - Case of the Slovak Republic

In this paper, an intertemporal model is used to analyze the development of the current account of Slovakia for period of 1996 to 2012. The intertemporal model presented here takes into account several sources of external shocks for small economies such as a change of the real interest rate and the real exchange rate. Model used for computation heavily relies on second generation of intertemporal model firstly presented in paper by Bergin and Sheffrin (2000). Thanks to the model we are able to estimate possible development of the current account of the Slovak Republic for the next 20 quarters. Our results suggest that the model has a high predictive power in explaining the cyclical part of the consumption based current account. The evolution of the consumption based current account should be stable and increasing with decreasing magnitude of changes in cyclical part of the account.