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Oil price shocks and the composition of current account balance

Author

Listed:
  • Serdar Varlik
  • M.Hakan Berument

Abstract

It is a well-established regularity that permanent oil price shocks do not have a permanent effect on the current account deficit. This requires that sub-components of the current account or trade balance will make the necessary adjustments to accommodate the higher energy bill of a country triggered by permanent crude oil price increases. Empirical evidence gathered from Turkey reveals that, in the long run, balancing the current account is provided by a permanent increase in the net exports of Agricultural Production, Maintenance and Repair Services, Travel, Construction, Financial Services, Compensation of Employees, and Goods under Merchanting (non-tradable components of the current account balance); and a permanent decrease in the net exports of Mining, Fishery, Other Goods for BEC Classification, Investment Income, Manufacturing Services on Physical Inputs Owned by Others, and Transport balances mostly in sectors that use energy heavily in production. All these responses are found to be statistically significant in the more than 24 periods we consider in this study.

Suggested Citation

  • Serdar Varlik & M.Hakan Berument, 2020. "Oil price shocks and the composition of current account balance," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 20(1), pages 1-8.
    • Handle: RePEc:tcb:cebare:v:20:y:2020:i:1:p:1-8
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    File URL: https://www.sciencedirect.com/journal/central-bank-review/vol/20/issue/1
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    Cited by:

    1. Nahla Samargandi & Kazi Sohag, 2022. "Oil Price Shocks to Foreign Assets and Liabilities in Saudi Arabia under Pegged Exchange Rate," Mathematics, MDPI, vol. 10(24), pages 1-15, December.
    2. Nenubari John Ikue & Lamin Mohammed Magaji & Samuel Zeb-Omoni & Mohammed, Aminu Usman & Joseph Osaro Denwi, 2021. "Trade Balance and Oil Shocks in African Oil Exporting Countries: A Panel Threshold Regression," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(4), pages 150-166, October.

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