Durability in consumption and the dynamics of the current account

In a model with durable goods and Ricardian production technology, an increase in government expenditure increases the steady-state level of employment and reduces consumption. The country runs a current account surplus. The two-factor model with costly investment, akin to Turnovsky and Sen (Oxford Econom. Pap. 43 (1991) 1) confirms all the basic results of the simple model except for the current account balance. The increase in capital has a negative effect; whereas a decrease in the stock of consumer durables has a positive effect on the purchase of foreign bonds - thus creating an ambiguous effect on the current account balance. Moreover, the current account will likely exhibit non-monotonic adjustment.