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

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  • Mr. Jens R Clausen
  • Ms. Magda E. Kandil

Abstract

The paper investigates cyclical fluctuations in the current and financial (formerly capital) accounts of the balance of payments and major underlying components for nine industrial countries. The empirical model uses as explanatory variables domestic output growth, price inflation, real exchange rate fluctuations, energy price inflation, global growth, and regional growth. The evidence from the estimation of the model indicates the importance of fluctuations in output growth to the cyclicality of the current and financial account balances. The necessary and sufficient condition to sustain a large current account deficit is high domestic growth, which tends to stimulate financial inflows and provides adequate resources for financing. Other factors appear to be less important to the cyclicality of the current and financial account balances and their negative correlations.

Suggested Citation

  • Mr. Jens R Clausen & Ms. Magda E. Kandil, 2005. "On Cyclicality in the Current and Financial Accounts: Evidence from Nine Industrial Countries," IMF Working Papers 2005/056, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/056
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    Cited by:

    1. Tuvshintugs Batdelger & Magda Kandil, 2012. "Determinants of the current account balance in the United States," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 653-669, February.
    2. Marcus Giamattei & Johann Lambsdorff, 2015. "Balancing the current account: experimental evidence on underconsumption," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 670-696, December.
    3. Aleksandar Stojkov, 2006. "A Survey Of Competing Theoretical Approaches To Current Account Determination," Journal Articles, Center For Economic Analyses, pages 1-32, June.
    4. Amira Karimova & Ahmet Caliskan & Jamshid Karimov, 2017. "Global Credit Supply and External Exposure in Turkey," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 1(1), pages 15-34.
    5. João Falcão Silva & Vitor Lopes Silveira, 2017. "Portuguese economy: Statistical analysis on the current account reversal´s sustainability," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43, Bank for International Settlements.

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    Keywords

    WP; deficit; trading partner; value;
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