On the link between current account and oil price fluctuations in diversified economies: The case of Canada

Blaise Gnimassoun, Marc Joëts and Tovonony Razafindrabe

International Economics, 2017, issue 152, 63-78

Abstract: This study revisits the important relationship between oil prices and current account for an oil-exporting-country with a diversified economy, namely Canada, by paying particular attention to the time-varying nature of this link. To this end, we rely on an innovative method, the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has a non-significant impact on the current account, an oil demand shock has a positive and significant effect, which tends to increase over time. In addition, by studying the economic factors underlying the evolution of this relation, we show that the propensity to spend oil revenues on imports has a significant negative influence on the pass-through of oil demand shocks on current account. However, a deepening of the domestic financial market and an accumulation of foreign exchange reserves have a significant positive effect on this relationship.

Keywords: Current account; Oil prices; Time-varying parameters (search for similar items in EconPapers)
JEL-codes: C32 F32 Q43 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: On the link between current account and oil price fluctuations in diversified economies: The case of Canada (2017)
Working Paper: On the link between current account and oil price fluctuations in diversified economies: The case of Canada (2017)
Working Paper: On the link between current account and oil price fluctuations in diversified economies: The case of Canada (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2017-q4-152-6

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