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Assessing the Current Account Gap in Colombia: A Normative Estimation Approach

Author

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  • Marlon Salazar

    (Banco de la Rep´ublica de Colombia)

Abstract

The current account (CA) balance indicates a country’s savings-investment position; sus-tained deficits require foreign capital. To monitor Colombia’s external vulnerability risk, we estimate a normative CA level using an unbalanced panel model based on long-run funda-mental structural variables. The difference between the observed CA and this normative level, termed the CA gap, signals potential macroeconomic imbalances and vulnerability, of-ten precipitating sharp adjustments. Our results emphasize Colombia’s oil balance as key to explaining this gap. We identify heightened vulnerability periods: 2010–2016 and 2021–2022. Recently (2023-2024), the gap narrowed due to monetary tightening, fiscal consolidation, re-silient service exports, and rising remittances. Finally, we show this framework can generate quarterly, real-time CA gap nowcasts for timely policy signals.

Suggested Citation

  • Marlon Salazar, 2025. "Assessing the Current Account Gap in Colombia: A Normative Estimation Approach," IHEID Working Papers 08-2025, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp08-2025
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    More about this item

    Keywords

    Current account imbalance; Normative current account; Current account gap; External vulnerability; Global imbalances;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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