Assessing the Current Account Gap in Colombia: A Normative Estimation Approach

Marlon Salazar
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Marlon Salazar: Banco de la Rep´ublica de Colombia

No 08-2025, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: The current account (CA) balance indicates a country’s savings-investment position; sus-tained deficits require foreign capital. To monitor Colombia’s external vulnerability risk, we estimate a normative CA level using an unbalanced panel model based on long-run funda-mental structural variables. The difference between the observed CA and this normative level, termed the CA gap, signals potential macroeconomic imbalances and vulnerability, of-ten precipitating sharp adjustments. Our results emphasize Colombia’s oil balance as key to explaining this gap. We identify heightened vulnerability periods: 2010–2016 and 2021–2022. Recently (2023-2024), the gap narrowed due to monetary tightening, fiscal consolidation, re-silient service exports, and rising remittances. Finally, we show this framework can generate quarterly, real-time CA gap nowcasts for timely policy signals.

Keywords: Current account imbalance; Normative current account; Current account gap; External vulnerability; Global imbalances (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2025-07-03
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp08-2025

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