Methodologies for the Assessment of Current Account Benchmarks

This paper describes two methodologies to compute benchmarks for current account balances. The first benchmark helps to assess the implications of current account balances for the Net International Investment Position (NIIP). These NIIP-stabilising benchmarks are the current account/GDP ratios required to stabilise the stock of net external liabilities at their current levels, or for the NIIP to reach a pre-specified prudential target. The second benchmark computes current account norms which represent current account balances that are in line with economic fundamentals. This benchmark is obtained from the estimation of an empirical model for current accounts based on annual data from a panel of 65 advanced and emerging economies following a methodology akin to Phillips et al. (2013). Current account norms are computed as the prediction from the model restricted to explanatory factors that can be considered as fundamentals, i.e. non-temporary economic factors and policy-related variables at ‘normal’ (world-average) level. The first two benchmarks provide complementary information in assessing current account positions: the NIIPstabilising current account permits the implications of stock imbalances to be assessed from a prudential perspective; while current account norms allow deviations from economic fundamentals over the mediumto-long term to be evaluated.