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Demographics and Current Account Imbalances: Accounting for the Full Age Distribution

Author

Listed:
  • Miriam Koomen

    (Swiss National Bank)

  • Laurence Wicht

    (Swiss National Bank)

Abstract

This paper investigates the relationship between demographics and the current account (CA) employing a polynomial measure that considers the full age distribution. Using a panel of 49 countries over 30 years of data, the polynomial produces economically more intuitive and stable results than previously used demographics measures. We find strong and robust non-linear effects. Specifically, we find that a relatively larger share of young cohorts is correlated with a lower CA, while a larger share of working-age cohorts is correlated with a higher CA. Our results show that disregarding any age group may fail to account for the full demographic effect on the CA over time and across countries. Accounting for the full age distribution thus allows to explain a larger share of observed CA surpluses and deficits.

Suggested Citation

  • Miriam Koomen & Laurence Wicht, 2023. "Demographics and Current Account Imbalances: Accounting for the Full Age Distribution," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 719-758, September.
    • Handle: RePEc:pal:imfecr:v:71:y:2023:i:3:d:10.1057_s41308-022-00176-6
    DOI: 10.1057/s41308-022-00176-6
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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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