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Adjusting the external adjustment: cyclical factors and the Italian current account

Author

Listed:
  • Silvia Fabiani

    (Bank of Italy)

  • Stefano Federico

    (Bank of Italy)

  • Alberto Felettigh

    (Bank of Italy)

Abstract

We investigate the role of cyclical factors in the adjustment of Italy�s external balance from 2010, developing a model that infers the potential levels of domestic demand and of imports and exports from an exogenous measure of potential output, in an internally coherent fashion and also taking composition effects into account. According to our results, in 2015 Italy�s cyclically-adjusted current account surplus came to about 0.5 percentage points of GDP; the overall external rebalancing of the Italian economy has largely been of a non-cyclical nature, with a positive contribution from the decline in the prices of energy commodities. By applying our methodology to the other major euro-area countries, we find that current account imbalances over the recent period are amplified when assessed in cyclically-adjusted terms.

Suggested Citation

  • Silvia Fabiani & Stefano Federico & Alberto Felettigh, 2016. "Adjusting the external adjustment: cyclical factors and the Italian current account," Questioni di Economia e Finanza (Occasional Papers) 346, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_346_16
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    References listed on IDEAS

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    Cited by:

    1. Valerio Della Corte & Claire Giordano, 2021. "Methodological issues in the estimation of current account imbalances," Questioni di Economia e Finanza (Occasional Papers) 617, Bank of Italy, Economic Research and International Relations Area.
    2. Aaron George Grech & Noel Rapa, 2019. "A reassessment of external demand’s contribution to Malta’s economic growth," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-13, December.
    3. Aaron G Grech & Noel Rapa, "undated". "Trends in Malta’s current account and their underlying causes," CBM Policy Papers PP/03/2016, Central Bank of Malta.
    4. Claire Giordano, 2018. "Price and cost competitiveness misalignments of the euro area and of its main economies according to a quarterly BEER model, 1999-2017," Questioni di Economia e Finanza (Occasional Papers) 444, Bank of Italy, Economic Research and International Relations Area.
    5. João Amador & João Falcão Silva, 2019. "Cyclically-adjusted current account balances in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    current account; business fluctuations; macroeconomic imbalances; output gap;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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