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Sources of Current Account Fluctuations in Industrialized Countries

Author

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  • Aikaterini Karadimitropoulou
  • Miguel A. León-Ledesma

Abstract

We analyze the sources of current account fluctuations for the G6 economies. Based on Bergin and Sheffrin’s (2000) two-goods inter-temporal framework, we build a SVAR model including the world real interest rate, net output, real exchange rate, and the current account. The theory model allows for the identification of structural shocks in the SVAR using longrun restrictions. Our results suggest three main conclusions: i) we find evidence in favour of the present-value model of the CA for all countries except France; ii) there is substantial support for the two-good intertemporal model, since both external supply and preferences shocks account for an important proportion of CA fluctuations; iii) temporary domestic shocks account for a large proportion of CA fluctuations, but the excess response of the CA is less pronounced than in previous studies.

Suggested Citation

  • Aikaterini Karadimitropoulou & Miguel A. León-Ledesma, 2009. "Sources of Current Account Fluctuations in Industrialized Countries," Studies in Economics 0910, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:0910
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    References listed on IDEAS

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    3. Oyakhilome IBHAGUI, 2017. "Understanding the sources of high current account fluctuations in 5 developed economies," Turkish Economic Review, KSP Journals, vol. 4(3), pages 250-274, September.

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    More about this item

    Keywords

    Current account; real exchange rate; two-good intertemporal model; SVAR;
    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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