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The importance of the financial system for the current account in Sweden: A sectoral approach

Erik Spanberg and Hovick Shahnazarian

International Economics, 2019, issue 158, 91-103

Abstract: This paper takes a sectoral approach to investigate the importance of financial variables for current account dynamics in Sweden. We use a Bayesian VAR modelwith priors on the steady states to analyse the determinants of net lending in different sectors and by extension the current account. The results suggest that: (i) the sectoral approach provides added value in analysing and understanding the drivers of the current account; (ii) demographic and financial shocks each account for 10–40 per cent of the forecast error variance of net lending in different sectors; (iii) negative development in the financial variables has a negative impact on the current account; and (iv) the importance and impact magnitudes of financial shocks depend on how economic policies are assumed to counteract these shocks.

Keywords: Current account; Net lending; Financial variables; Bayesian VAR (search for similar items in EconPapers)
JEL-codes: E20 E44 F32 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:cii:cepiie:2019-q2-158-8