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On Cyclicality in the Current and Financial Accounts: Evidence from Nine Industrial Countries

  • Jens R Clausen

    (African Department, International Monetary Fund, 700 Nineteenth Street, Washington DC, USA)

  • Magda Kandil

    (Western Hemisphere Department, International Monetary Fund, 700 Nineteenth Street, Washington DC, USA)

The paper investigates cyclical fluctuations in the current and financial accounts of the balance of payments and major underlying components for nine industrial countries. Explanatory variables are domestic output growth, price inflation, real exchange rate fluctuations, energy price inflation, global growth, and regional growth. The evidence indicates the importance of fluctuations in output growth to the cyclicality of the current and financial balances. High domestic growth tends to stimulate financial inflows and provides adequate resources to finance a large current account deficit. Other factors appear to be less important to the cyclicality of the current and financial balances and their negative correlations. Eastern Economic Journal (2009) 35, 338–366. doi:10.1057/eej.2008.16

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Article provided by Palgrave Macmillan in its journal Eastern Economic Journal.

Volume (Year): 35 (2009 Summer)
Issue (Month): 3 ()
Pages: 338-366

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Handle: RePEc:pal:easeco:v:35:y:2009:i:3:p:338-366
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