A Closer Look at EU Current Accounts

Mariarosaria Comunale

No 393, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In this paper, we look at the determinants of current accounts in twenty-seven EU countries over the period 1994-2014. The twenty-seven countries of interest are divided into three sub-groups, namely: core, periphery and CEE new member states. We also assess the current accounts based on computed equilibrium values, and we provide a measure of misalignment for the medium run. As determinants we include capital flows as well as demographic, fiscal and relative development factors. The initial Net Foreign Asset position and oil balance seem to matter more in the core countries than in the periphery and CEE new member states. In contrast, the periphery and CEE new member states seem to be more strongly affected by capital flows. Fiscal balance negatively affects only the periphery, while an increase in government spending is positive for the current account for CEE new member states. In the past twenty years these misalignments have shown a cyclical behaviour in most EU countries, and the magnitude of the cycles themselves are highly heterogeneous across groups. Lastly, we compute an adjusted current account equilibrium, which tries to correct the equilibrium value by the role of expectations (proxied by IMF projections). This factor has more of an impact in the UK than in the euro-area countries.

Keywords: Current account misalignments; foreign capital flows; European Union. (search for similar items in EconPapers)
JEL-codes: C33 F31 F32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-08-11, Revised 2016-08-11
New Economics Papers: this item is included in nep-acc, nep-eec and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:393

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