Methodological issues in the estimation of current account imbalances

Valerio Della Corte and Claire Giordano

No 617, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The study outlines the main challenges when setting up a “current account (CA) model” in order to measure external imbalances. This model is a reduced-form relationship between the CA balance and a set of CA fundamental and policy drivers, from which a CA “norm” may be derived and against which the actual CA balance is appraised. After having formally outlined a standard CA model similar to those developed by the main international institutions, the paper raises several concerns in CA modelling, amongst which the measurement and selection of both the dependent and explanatory variables and some technical issues in the estimation procedure. Recent trends affecting the CA balance, such as the expansion of global firms and the rise in corporate saving, as well as the outbreak of the COVID-19 pandemic, are also discussed. The paper does not prescribe fully-fledged solutions to the manifold issues discussed, but rather aims to raise awareness of the latter, as well to provide some hints on how to tackle at least some of these challenges.

Keywords: current account balance; cyclically-adjusted current account; external imbalances (search for similar items in EconPapers)
JEL-codes: F00 F20 F32 F41 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-acc and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_617_21

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