Structural current account benchmarks for the European Union countries: cross-section exploration

Kamila Kuziemska-Pawlak and Jakub Mućk

No 320, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper provides an empirical investigation of the medium- to long- term (structural) determinants of current account to GDP ratio. Cross-section regressions are run on the data for a large group of countries (94 economies) averaged over the period 2008-2016. The traditional set of factors explaining the current account is extended with the level of price-cost competitiveness proxied by national price level. The link between the national price level and the current account proves to be of a non-linear nature and depend on the level of economic development. Based on a battery of estimates, structural current accounts are calculated and compared with actual current accounts for 28 EU countries. In the aftermath of the crisis that escalated in 2008, narrowing gaps between actual and structural current accounts were observed in many EU deficit countries. On the other hand, large positive current account gaps persisted in surplus countries. Decomposition of changes in structural current account since 1995, conducted for the subset of the EU Member States for which the data were available, indicates that the changes in structural current account were mainly driven by the changes in income and the changes in general government balance.

Keywords: determinants of current account; current account thresholds; crosssection estimation; panel data estimation (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Pages: 40
Date: 2019
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (1)

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Journal Article: Structural current accounts in the European Union countries: cross-sectional exploration (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:320

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