In this paper a Blanchard (1985) type model has been applied to a small open economy to analyse the long-term behaviour of current account balance. It shows, under the assumptions of the model that the current account balance, net-of-government-debt wealth of households, the difference between...

Recent theoretical development in closed-economy macroeconomics are extended to open economies to investigate the dynamics of the current account of the balance of payments and the effects of fiscal policies.