Dominant Drivers of Current Account Dynamics

Lukas Boer and Jaewoo Lee

No 2024/092, IMF Working Papers from International Monetary Fund

Abstract: We estimate shocks that explain most of the variation in the current account at business cycle frequencies and over the long run. We then explore, using a standard open-economy macro model, which macroeconomic shocks are behind the empirical dominant drivers of the current account at business-cycle frequency. Rather than financial shocks or aggregate shocks to supply or demand, shocks to the relative demand between home and foreign goods are found to play a pivotal role in current account dynamics.

Keywords: Current Account; Exchange Rates; Relative Demand; Open- Economy Model; current account dynamics; IMF working paper 24/92; business-cycle frequency; CA shock; impulse response; Nominal effective exchange rate; Current account balance; Business cycles; Global (search for similar items in EconPapers)
Pages: 47
Date: 2024-04-26
New Economics Papers: this item is included in nep-dge and nep-opm
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