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Adjusting the external adjustment: cyclical factors and the Italian current account

Silvia Fabiani (), Stefano Federico and Alberto Felettigh ()

No 346, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We investigate the role of cyclical factors in the adjustment of Italy�s external balance from 2010, developing a model that infers the potential levels of domestic demand and of imports and exports from an exogenous measure of potential output, in an internally coherent fashion and also taking composition effects into account. According to our results, in 2015 Italy�s cyclically-adjusted current account surplus came to about 0.5 percentage points of GDP; the overall external rebalancing of the Italian economy has largely been of a non-cyclical nature, with a positive contribution from the decline in the prices of energy commodities. By applying our methodology to the other major euro-area countries, we find that current account imbalances over the recent period are amplified when assessed in cyclically-adjusted terms.

Keywords: current account; business fluctuations; macroeconomic imbalances; output gap (search for similar items in EconPapers)
JEL-codes: F32 F40 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-acc, nep-eec and nep-int
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