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Energy Price Shocks and Current Account Balances : Evidence from Emerging Market and Developing Economies

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  • Lebrand,Mathilde Sylvie Maria
  • Vasishtha,Garima
  • Yilmazkuday,Hakan

Abstract

This paper investigates the effects of real energy price shocks on the current account balances of 45 emerging market and developing economies using country-specific structural vector autoregression models. The empirical results suggest that a 1 percent increase in real oil prices results in up to 0.11 percentage point cumulative improvement in the current account balances of oil exporters after five years, while a similar shock to real natural gas prices results in up to 0.06 percentage point improvement in the current account balances of natural gas exporters after five years. Real coal price shocks result in higher current account balances of oil exporters and natural gas exporters, suggesting substitution of coal with oil and natural gas in such cases. When the contributions of alternative real energy prices to the variance of current account balances are compared, oil price shocks dominate those of natural gas and coal prices. On the source of oil price shocks, the results support the view that the effects of oil demand shocks on current account balances are different from those of oil supply shocks. The results are robust to alternative specifications and identification schemes.

Suggested Citation

  • Lebrand,Mathilde Sylvie Maria & Vasishtha,Garima & Yilmazkuday,Hakan, 2023. "Energy Price Shocks and Current Account Balances : Evidence from Emerging Market and Developing Economies," Policy Research Working Paper Series 10623, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10623
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    More about this item

    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
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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