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Methodological issues in the estimation of current account imbalances

Author

Listed:
  • Valerio Della Corte

    (Bank of Italy)

  • Claire Giordano

    (Bank of Italy)

Abstract

The study outlines the main challenges when setting up a “current account (CA) model” in order to measure external imbalances. This model is a reduced-form relationship between the CA balance and a set of CA fundamental and policy drivers, from which a CA “norm” may be derived and against which the actual CA balance is appraised. After having formally outlined a standard CA model similar to those developed by the main international institutions, the paper raises several concerns in CA modelling, amongst which the measurement and selection of both the dependent and explanatory variables and some technical issues in the estimation procedure. Recent trends affecting the CA balance, such as the expansion of global firms and the rise in corporate saving, as well as the outbreak of the COVID-19 pandemic, are also discussed. The paper does not prescribe fully-fledged solutions to the manifold issues discussed, but rather aims to raise awareness of the latter, as well to provide some hints on how to tackle at least some of these challenges.

Suggested Citation

  • Valerio Della Corte & Claire Giordano, 2021. "Methodological issues in the estimation of current account imbalances," Questioni di Economia e Finanza (Occasional Papers) 617, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_617_21
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    More about this item

    Keywords

    current account balance; cyclically-adjusted current account; external imbalances;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • 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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