Meeting with Prof Tan 29/8/07

Section 2:

Part one of this section would be about the 3 approaches (i.e. Savings Investment approach, Absorption approach and the elasticity approach).

In part 2, we would find out what exactly are the determinants to current account balance, e.g. REER, relative wages, budget deficits, public and private savings rate. In the literature review, we would explore what others have already done, and possibly highlight those that are in-line with our research to help guild in building our model

We have to look at the current account data which would help us determine what the factors are, in other not to be confused with the net factor income flow

CA = NX + Net Factor Income Flow

By looking at the current account data, it would eliminate our concern of not factoring the second part of the equation hence would be effective in capturing both net exports and net factor income flow.

Wages: We can take relative wages of both countries to explore their cost competitiveness. (Must note to account for relative inflation)

Measuring Cost competitiveness

REER (CPI)- prices might not be a good gauge as the country might have a slack monetary policy

REER (RULC)- using labor cost to compare the exchange rate between countries