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Authors
Advisor(s)
Abstract(s)
In this paper, we decompose the current account (CA) balance in 19 Euro area countries into cyclical
and non-cyclical components. For the period 1999:Q1 to 2015:Q4, we compute income elasticities of
imports and of exports via an alternative novel and improved approach by running time-varying
coefficient models country-by-country. Then, in a panel set-up (and controlling for country-invariant
characteristics), we uncover that terms of trade have a positive effect on both the cyclical and noncyclical
components of the CA, while the Global Financial Crisis, compensation of employees and
the employment level have a negative effect on the cyclical component. Moreover, the crisis had a
greater impact on the cyclical component of the CA due to movements in the real effective exchange
rate. In addition, we find a negative effect of the crisis on the cyclical component of the CA for
countries that received financial assistance from the European Union, notably Ireland, Portugal, Spain
and Latvia.
Description
Keywords
current account cyclicality financial markets time-varying coefficients
Pedagogical Context
Citation
Afonso, António e João Jalles (2018). "Decomposing and analysing the determinants of current accounts’ cyclicality : evidence from the Euro Area". Instituto Superior de Economia e Gestão – REM Working paper nº 042 - 2018
Publisher
ISEG - REM - Research in Economics and Mathematics