Current account balance cyclicality

ABSTRACT

We assess the cyclicality of current account balances for the period 2001Q1–2014Q4, focusing on Portugal and using Germany as a benchmark. We find that the cyclical component of the current account was positively explained by 3-month Euribor, but negatively by the financial crisis, systemic stress in Europe, employment and compensation of employees. Moreover, the noncyclical current account was positively affected by the period of the economic and financial adjustment programme and the terms of trade, but negatively influenced by financial integration.

KEYWORDS:

• Current account cyclicality
• financial markets
• Portugal
• Germany

JEL CLASSIFICATION:

• C23
• F32
• G01

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We consider as an assumption that the output gap of the trading partner is the euro area as a whole.

² The estimations for Germany include a first-order autoregressive coefficient of the error term (ρ) to solve autocorrelation problems.

Additional information

Funding

UECE is supported by Fundação para a Ciência e a Tecnologia (Portuguese Foundation for Science and Technology).