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Dominant drivers of current account dynamics

Author

Listed:
  • Boer, Lukas
  • Lee, Jaewoo
  • Sun, Mingzuo

Abstract

What are the key drivers of current account dynamics? We estimate shocks that explain most of the variation in the current account for the US and other G7 economies. Discovering that the dominant shocks contradict the expenditure switching effect at business cycle frequency, we then explore which macroeconomic shocks are behind these empirical dominant drivers of the current account. Rather than traditional aggregate shocks to supply and demand or recently emphasized financial shocks, shocks to the relative demand between home and foreign goods are found to play a pivotal role in current account dynamics.

Suggested Citation

  • Boer, Lukas & Lee, Jaewoo & Sun, Mingzuo, 2026. "Dominant drivers of current account dynamics," Journal of International Economics, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:inecon:v:159:y:2026:i:c:s0022199625001564
    DOI: 10.1016/j.jinteco.2025.104199
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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