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Are external accounts sustainable in Portugal?

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Abstract

This study assesses the sustainability of the Portuguese external accounts during the period 1999-2014 and the role of the public sector.There was evidence of higher import content of the non-construction investment and private investment. Therefore, the high import content of the non-construction investment was an additional challenge because its increase did not create a strong positive multiplier effect on the Portuguese economy. Exports in volume were determined by the economic growth rate of the euro area, the share of the Portuguese nominal exports in the total exports of the euro area, unit labour costs of the private sector due to the compensation of employees and real productivity, the exchange rate and the terms of trade. There was no evidence of twin deficits. Additionally, there was a negative correlation between the internal and the external balance. Furthermore, we analysed the determinants of the liabilities related to the international investment position, decomposing the external funding and identifying their determinants.

Suggested Citation

  • Jorge Silva, 2017. "Are external accounts sustainable in Portugal?," Working Papers REM 2017/21, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0212017
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_021_2017.pdf
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    References listed on IDEAS

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    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2012. "External adjustment and the global crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 252-265.
    2. António Afonso & Jorge Silva, 2017. "Current account balance cyclicality," Applied Economics Letters, Taylor & Francis Journals, vol. 24(13), pages 911-917, July.
    3. Igor Lebrun & Esther Pérez, 2011. "Real Unit labor costs differentials in EMU: How big, how benign and how reversible?," EcoMod2011 2830, EcoMod.
    4. António Afonso & Christophe Rault, 2008. "Budgetary and External Imbalances Relationship : a Panel Data Diagnostic," Working Papers Department of Economics 2008/45, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Mr. Christiane Nickel & Ms. Katja Funke, 2006. "Does Fiscal Policy Matter for the Trade Account? A Panel Cointegration Study," IMF Working Papers 2006/147, International Monetary Fund.
    6. Nickel, Christiane & Funke, Katja, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank.
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    More about this item

    Keywords

    Current account; financial markets; Portugal; international investment position; economic and financial adjustment programme;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises

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