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The importance of the financial system for the current account in Sweden: A sectoral approach

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  • Erik Spanberg
  • Hovick Shahnazarian

Abstract

This paper takes a sectoral approach to investigate the importance of financial variables for current account dynamics in Sweden. We use a Bayesian VAR modelwith priors on the steady states to analyse the determinants of net lending in different sectors and by extension the current account. The results suggest that: (i) the sectoral approach provides added value in analysing and understanding the drivers of the current account; (ii) demographic and financial shocks each account for 10–40 per cent of the forecast error variance of net lending in different sectors; (iii) negative development in the financial variables has a negative impact on the current account; and (iv) the importance and impact magnitudes of financial shocks depend on how economic policies are assumed to counteract these shocks.

Suggested Citation

  • Erik Spanberg & Hovick Shahnazarian, 2019. "The importance of the financial system for the current account in Sweden: A sectoral approach," International Economics, CEPII research center, issue 158, pages 91-103.
    • Handle: RePEc:cii:cepiie:2019-q2-158-8
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    More about this item

    Keywords

    Current account; Net lending; Financial variables; Bayesian VAR;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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