The impact of external shocks on the current account

1990 ◽  
Vol 18 (1) ◽  
pp. 1-14
Author(s):  
Andre Raynauld
Keyword(s):  
Current Account ◽  
External Shocks ◽  
The Impact ◽  
The Current Account

What Explains Current Account Surplus in Korea?

2018 ◽  
Vol 17 (2) ◽  
pp. 70-93
Author(s):  
Chirok Han ◽  
Kwanho Shin
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Surplus ◽  
Short Run ◽  
The Right ◽  
The Impact ◽  
The Current Account

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

scholarly journals Structural and cyclical factors of Serbia’s current account

2018 ◽  
Vol 63 (217) ◽  
pp. 75-97 ◽  
Author(s):  
Radovan Kovacevic
Keyword(s):  
Current Account ◽  
Structural Changes ◽  
Current Account Deficit ◽  
Current Account Balance ◽  
Full Time ◽  
Structural Factors ◽  
Crisis Period ◽  
The Impact ◽  
The Current Account

This paper examines the impact of structural and cyclical factors on Serbia?s current account. We have applied several filters to turn off the long-term (structural) component and isolate the influence of cyclical factors. In this paper, we show that structural factors were more important determinants of the current account deficit in the full-time sample (1997-2016), while cyclical factors showed a stronger impact in the post-crisis period when the deficit was reduced. Although they lost their intensity during the crisis and in the post-crisis period, the structural factors determine the trend of the current account balance in the long-term. For further improvement of the current account, measures to increase exports should be taken. The structural changes of production, the wider range of support for export financing to small and medium-sized enterprises, and the application of advanced technologies in manufacturing could help to reduce the trade deficit, making the current account deficit sustainable.

scholarly journals Analysis of Current Account Deficit Determinants of Balance of Payments in Fixed and Flexible Exchange Rate Regimes: A Comparative Study in CFA Franc and Non-Franc Zones

2017 ◽  
Vol 3 (3) ◽  
pp. 447
Author(s):  
Remy Hounsou
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Flexible Exchange Rate ◽  
Balance Of Payments ◽  
Current Account Balance ◽  
Domestic Saving ◽  
Franc Zone ◽  
Financial Variables ◽  
The Impact ◽  
The Current Account

<p><em>This study compares the impact of certain economic and financial variables on the level of the deficit in the current account of the balance of payments of the countries of the Franc zone and certain countries of the non-Franc zone situated south of the Sahara. The empirical results of the study based on panel data models covering the period 1990-2015 indicate that none of the two zones behaves better against the current account deficit of the balance of payments and that no zone is more competitive than the other. Finally, it was clear from our analysis that the variables of gross domestic, saving and the change in the terms of trade better explain the change in the current account balance in the Franc zone, whereas the variables of net foreign transfers and gross domestic saving impact the most the current account deficit in non-CFA zone.</em></p>

The Impact of Current Account Deficit on Economic Growth: An ARDL Approach

2020 ◽  
Vol 21 (1) ◽  
pp. 76-92
Author(s):  
Tamma Reddy ◽  
T. Sita Ramaiah
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
External Debt ◽  
Unit Root Test ◽  
Output Growth ◽  
The Impact ◽  
The Current Account

In this study, we examine the linkages between External debt, Exchange rate, Current account deficit, and GDP at Factor cost for India over the period of 1975-76 to 2018- 19 using the Unit root test and Autoregressive Distributed Lag (ARDL). The results of the unit root test reveal that GDP growth rate and External debt are integrated at the level I(0); while the Current Account deficit and Exchange rate are integrated at first order I(1). The results of the ARDL technique reveal that the current account deficit has a positive and significant impact on Real GDP. It clearly reflects the role of imports in accelerating the growth of a developing economy like India. There is also evidence that the external debt has a positive and significant impact on the Current account deficit while the Exchange rate does not have an impact on the Current account deficit. The authors opine that the external debt assists in a gradual reduction in the current account deficit and contributes to economic growth by narrowing down the saving-investment gap. As the demand for Indian exports is inelastic in the global market, the country has not benefitted from the depreciation of its currency. The authors stressed the need for focusing on further diversification of its export markets, creating a conducive environment for attracting longer-term FDIs, liberalization, promoting commercial services exports, and achieving exchange rate stability in the context of the USA-China trade war and stagnation in the world output growth. Huge untapped potential for IT-enabled services should be exploited to promote service trade. The authors point out the current account deficit in the range of 2-3 percent of GDP can be manageable.

scholarly journals Détermination Du Seuil De Viabilité De La Position Extérieure Au Maroc: Evaluation Empirique

2018 ◽  
Vol 14 (7) ◽  
pp. 32
Author(s):  
Abdellali Fadlallah ◽  
Zakaria Chakhat
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Vector Error Correction Model ◽  
Correction Model ◽  
Vector Error Correction ◽  
Explanatory Variables ◽  
Vector Error ◽  
Econometric Study ◽  
The Impact ◽  
The Current Account

This paper focuses on addressing question on the sustainability of the Moroccan current account. The purpose of this study is to examine theoretical and empirical determinants of the behaviour of the current account deficit in order to apprehend economic policy decisions. An econometric study was conducted in this sense using a vector error-correction model (VECM) during the period (2004Q1-2013Q4). This technique enabled the capture of the longterm relationship. the impact of explanatory variables on the current account was also examined. The examination of the sustainability threshold calculated by the Reisena method revealed that signs of unsustainability have emerged since 2008, which is in line with the results of MFR. However, it is only in 2011 that the current account exhibits deficits that largely exceed the optimal threshold, exposing the national economy to greater vulnerability.

scholarly journals The effect of fiscal deficits on the external imbalances in the European Union

2020 ◽  
pp. 17-17
Author(s):  
Kosta Josifidis ◽  
Dragutinovic Mitrovic ◽  
Sladjana Bodor
Keyword(s):  
European Union ◽  
Current Account ◽  
Current Account Deficit ◽  
Fiscal Deficit ◽  
The European Union ◽  
External Imbalances ◽  
Econometric Methods ◽  
Long Run ◽  
The Impact ◽  
The Current Account

This paper analyzes the effect of the fiscal deficit on the current account deficit in the European Union during the period 1995-2018. The purpose is to examine to what extent an increase in government spending affects the deterioration of terms of trade and contributes to increasing external imbalances. Econometric methods for heterogeneous panel data models are used to analyse the existence of a long-run relationship between the fiscal deficit and the current account. The empirical findings indicate that the twin deficits hypothesis is not confirmed for the whole European Union, but only for a certain number of member states, where a long-run relationship still exists, confirming the impact of the fiscal deficit on the current account.

scholarly journals The sustainability of Serbia's external position: The impact of fiscal adjustment and external shocks

2015 ◽  
Vol 60 (204) ◽  
pp. 31-60
Author(s):  
Emir Zildzovic
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Current Account Deficit ◽  
Model Averaging ◽  
Current Account Balance ◽  
External Shocks ◽  
Fiscal Adjustment ◽  
External Position ◽  
The Impact ◽  
Averaging Techniques

This paper studies the impact of fiscal policy and external shocks on the sustainability of Serbia?s external position. The key determinants of Serbia's current account balance are identified using model averaging techniques and are compared with estimates obtained for other small open economies (Poland, Georgia, Morocco, Ukraine, and Estonia). The paper uses estimated influences of macrovariables on the current account balance to generate a rich set of possible outcomes for the external position of the country. The results suggest the importance of fiscal policy for the reduction of external imbalances in all countries in our sample. In particular, credible and sustained fiscal adjustment can reduce current account deficit and stabilize Serbia?s external position close to its current level over the medium term. The analysis also warns that lack of success in fiscal consolidation coupled with external shocks may easily push the external position onto an unsustainable path.

scholarly journals Trade Balance and Oil Shocks in African Oil Exporting Countries

2021 ◽  
Vol 10 (4) ◽  
pp. 150-166
Author(s):  
Nenubari John Ikue ◽  
Lamin Magaji ◽  
Samuel Zeb-Omoni ◽  
Mohammed, Usman ◽  
Joseph Denwi
Keyword(s):  
Crude Oil ◽  
Current Account ◽  
Current Account Balance ◽  
Oil Shocks ◽  
African Countries ◽  
Oil Revenue ◽  
Show Evidence ◽  
Policy Measures ◽  
The Impact ◽  
The Current Account

This paper is driven by the vast influence oil money have on the current account balance of major oil producing countries in Africa and the role policy measures could play to soften these effects. Dwelling on the nonlinear techniques, two types of Threshold Regression were used to estimate data on 8 African countries from 1995-2019. The results show evidence of nonlinear impacts of oil revenue on the current account balances of the 8 countries. The nature of the impact relies significantly on the levels of the threshold variable. Precisely, the estimated threshold benchmark for financial development was 33.34; below this threshold the sensitivity of current account balance to crude-oil shocks is higher and the probability of policy measures to mitigate the effects is low and, beyond the threshold the sensitivity of current account balance to crude-oil shocks is low and the probability of policy measure to mitigate the effects is higher. The finding suggested among others that crude-oil shocks is not the primary problem of the current account imbalance of oil-exporting countries rather the nature of the domestic economic policy environment.

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