Understanding the Sources of High Current Account Fluctuations in 5 Developed Economies

Oyakhilome Ibhagui

MPRA Paper from University Library of Munich, Germany

Abstract: The global economy has, in recent times, continued to face large and unprecedented external imbalances. Despite reductions recorded in aggregate current account (saving less investment) to global output ratio, the imbalances still remain. The main contributors to the imbalances have been the world’s developed economies. These developed economies have experienced fluctuating current account balances over the years and the fluctuation has contributed to a slow correction of the imbalances. This paper identifies 5 developed economies with the highest fluctuations in current account balances and analyses the sources of these fluctuations. The countries are Singapore, Latvia, Iceland, Norway and Estonia. Results obtained suggest that 1) temporary shocks account for most current account fluctuations, and the excess response to temporary shocks is as stable and pronounced as in previous studies; 2) permanent shocks drive current account fluctuations in Iceland and Latvia but not in Norway, Estonia, and Singapore; 3) Singapore demonstrates the most support for the two-good intertemporal model, since external supply and demand shocks account for its current account fluctuations

Keywords: Current account fluctuations; two-good intertemporal model; VAR and impulse response; V5 Economies (search for similar items in EconPapers)
JEL-codes: C1 F3 F4 F41 (search for similar items in EconPapers)
Date: 2015-10-18
New Economics Papers: this item is included in nep-cis, nep-opm and nep-sea
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Journal Article: Understanding the sources of high current account fluctuations in 5 developed economies (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:75881

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