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Macroeconomic Volatility and the Current Account: Evidence from a Panel of OECD Countries

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  • Georgios Karras

Abstract

This paper investigates the relationship between macroeconomic volatility and the current account. Using quarterly data for a panel of OECD economies, time-varying relative volatility measures are constructed for GDP, net output, and government consumption. The empirical evidence suggests that current account balances are positively affected by all three volatility measures. Moreover, the current account balance is found to be related positively to output growth and negatively to the growth of government consumption. Evidence from saving and investment rates also suggests that the precautionary saving motive is part of (though perhaps not the entire) mechanism that relates output volatility and the current account. Broadly consistent with the predictions of the standard theoretical model, these estimates are sizable, statistically significant, and robust.

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  • Georgios Karras, 2016. "Macroeconomic Volatility and the Current Account: Evidence from a Panel of OECD Countries," International Economic Journal, Taylor & Francis Journals, vol. 30(3), pages 322-338, July.
    • Handle: RePEc:taf:intecj:v:30:y:2016:i:3:p:322-338
    DOI: 10.1080/10168737.2016.1211843
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    Cited by:

    1. João Tovar Jalles & Georgios Karras, 2022. "Volatility and the Current Account: Extending the Evidence," Working Papers REM 2022/0252, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Jalles, João Tovar & Karras, Georgios, 2023. "Macroeconomic volatility and the current account: Extending the evidence," Economic Modelling, Elsevier, vol. 125(C).

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