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On the link between current account and oil price fluctuations in diversified economies: The case of Canada

Author

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  • Blaise Gnimassoun

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Marc Joëts

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Tovonony Razafindrabe

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This study revisits the important relationship between oil prices and current account for oil exporting countries by paying particular attention to the time-varying nature of this link. To this end, we rely on an innovative method, the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has non-significant impact on the current account, an oil demand shock has a positive and significant effect, which tends to increase over time. In addition, by studying the economic factors underlying the evolution of this relation, we show that the propensity to spend oil revenues on imports has a significant negative infuence on the pass-through of oil demand shocks on current account. However, a deepening of the domestic financial market and an accumulation of foreign exchange reserves have a significant positive effect on this relationship.

Suggested Citation

  • Blaise Gnimassoun & Marc Joëts & Tovonony Razafindrabe, 2016. "On the link between current account and oil price fluctuations in diversified economies: The case of Canada," Working Papers hal-04141574, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141574
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