Unstable debt-output ratios and transversality. In the unstable case of the model of a small country's debt-output ratio (appendix 2A), why is the transversality condition not violated as B/Y ?

business cycle and the current account. In the simplest static Keynesian models of undergraduate macroeconomics texts, higher current income Y may be associated with a current account deficit as imports mY rise. Thus the current account can be countercyclical. In actual industrial-country data, current accounts do tend to be countercyclical (see, for example, Baxter 1995).