Current Account Balance Research Articles

The Effects of Devaluation of Currency on Economic Growth: The Mediating Role of Current Account Deficit

This study explores whether Pakistan's current account deficit-acted as a mediator in the linkage between the devaluation of the currency and the expansion of the economy from 1972 to 2016. All the variables have been shown to have a heterogeneous order of integration by using the Augmented Ducky Fuller (ADF), Phillips-Perron (PP), and Ng-Parron unit root tests. As shown in this article, the Auto regressive Distributive Lag Model (ARDL) is used to figure out how the variables are linked. The results clearly demonstrate that the current account balance fully mediates the relationship between devaluation of the currency and economic growth with a coefficient value of -0.12. Findings show that devaluation of the currency negatively affects the current account balance and economic growth. Moreover, through an indirect channel,the devaluation negatively affects the current account balance, which hampers economic growth.

External sustainability in Spanish economy: Bubbles and crises, 1970–2020

AbstractWe address the issue of the sustainability Spain's external debt, using data for the period 1970–2020. To detect episodes of potentially explosive behavior of the Spanish net foreign assets over GDP ratio and the current account balance over GDP ratio, as well as episodes of external adjustments over this long period, we employ a recursive unit root test approach. Our empirical analysis leads us to conclude that there is some evidence of bubbles in the ratio between Spanish net foreign assets and the GDP. In contrast, the evidence that the ratio between the Spanish current account balance and the GDP had explosive subperiods is very weak. The episode of explosive behavior identified in the position of net foreign assets during the period 2002–2015 was the result of the country's economic expansion 1995–2007. The results also show an external adjustment during the period 2008–2019 after the start of a cyclical economic recession.

How Effective Are Macroprudential Policy Instruments? Evidence from Turkey

This study provides an empirical analysis of the two macroprudential instruments, namely the reserve option mechanism and the interest rate corridor, employed by the Central Bank of the Republic of Turkey in the aftermath of the global financial crisis. A nine-variable structural vector autoregressive model for Turkey is estimated with Bayesian techniques utilising data from October 2010 to May 2018. A set of timing, zero and sign restrictions are imposed to identify the reserve requirement and the interest rate shocks through the bank lending channel. The results reveal that the new policy frame is efficient in curbing the volatility in the exchange rates and in improving the current account balance. While the reserve requirements seem to be more effective on the current account and partly on the exchange rate, the interest rate fares better in controlling the price level.

Government early policy responses on COVID-19 challenges in central and eastern europe: SME support

he main aim of the given research is to analyse Government policy early response due to the Covid-19 crisis in Central and Eastern Europe regarding SME support. The research methodology is based on an analysis of the pandemic impact on key indicators of countries development as well as an analysis of SME support policies responses by selected countries (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovenia and Ukraine). The dynamic trends of Covid-19 spread and its impact on macroeconomic indicators were analysed. The negative growth of GDP, as well as current account balance and increasing gross debt burden, were explored in all analysed countries and the policy responses were the required measures to avoid possible economic collapse. Implemented measures were mainly directed to achieve economic recovery and capturing stability, but the main focus of the research is to analyse the support policies according to the criterion of enterprise size, SME in particular. The study is based on country-level data as well as on individual State Aid cases of each analysed CEE country. It allowed to evaluate policy response mechanisms in terms of measures regarding enterprise size. Although SMEs suffered the most during the crisis, CEE countries spent most of their resources on supporting companies, regardless of their size.

Analisis variabel yang mempengaruhi kinerja neraca transaksi berjalan Indonesia periode 2006-2020

This study aims to analyze whether the exchange rate, export, and import value affect Indonesia's current account balance. Using the Error Correction Model (ECM) analysis method. The results of this study partially show that the variable exchange rate and import value have a negative and significant on the current account balance variable in the long term; partially, the exchange rate variable has a negative and insignificant on the current account balance in the short time, partially the import value variable has a negative and significant on the current account balance in the short time, partially the export value variable has a positive and significant impact on the current account balance in the long term, and the short term and simultaneously the three independent variables have a positive and effective on the dependent variable in a long time and the short term.

Macroprudential policies and current account balance

Macroprudential policies have become essential tools for policymakers to maintain financial stability. We investigate the impact of macroprudential policies on the current account balance, considering the link between external imbalances and financial stability. Building on a panel VAR model, we further document that usage of a macroprudential instrument is associated with an improvement in the current account balance. Our findings suggest that the positive impact of macroprudential policy measures on the current account balance is more substantial in the deficit countries.

Analisis Pengaruh Nilai Tukar Rupiah dan Produk Domestik Bruto (PDB) Terhadap Neraca Transaksi Berjalan di Indonesia Tahun 2004-2020

This research aims to know how the influence of the rupiah exchange rate, BI rate, and GDP on the current account balance in Indonesian in 2004-2020. This research uses independent variables of The Rupiah Exchange, and Gross Domestic Product (GDP) and dependent variable is The Current Account Balance in Indonesian. The data used in this research is annual data from 2004-2020. The analytical method used in this study is multiple linear regression analysis using the Ordinary Least Square (OLS) method. The results showed that the Rupiah Exchange Rate variable had a negative and insignificant effect on the Current Account Balance in Indonesia for 2004-2020. it also showed that GDP has a significant negative effect on the Current Account in Indonesia in 2004-2020.

The Long-Run Relationship Between R&D Spending and Current Account Balances: A Panel Data Analysis

This study aims to find out the long-run relationship between R&D spending and the current account balances. The panel data analysis is carried out for the period between 1996 and 2018. 64 developing and developed countries are included in the study. Panel cointegration is applied to test the long-run relationships. There are significant and positive long-run relationships between the R&D spending with current account balances for four different country groups which are high income, all countries except industrial, all countries except industrial and African, and all countries groups. Results show that R&D spending is an important factor for both developing and developed countries to improve their current account balances positively. 1% increase in R&D spending improves 3.29% current account surplus for all countries, 4.55% for high income countries group.

Renewable energy and current account balance nexus.

Renewable energy is in the center for providing a sustainable energy future. Renewables are the key for overcoming the energy problems. This paper investigated the dynamic and causal relationship among renewable energy production, current account balance, energy imports, renewable energy consumption, and economic growth in the 1976-2019 period for G20 countries through panel Fourier bootstrapping ARDL model. According to empirical results, the evidence of cointegration between the selected variables was determined. Results indicate that economic growth, energy imports, energy consumption, and current account balance provide the important impacts on renewable energy generations. Our results determined that there is a unidirectional causality from energy imports, renewable energy consumption, and current deficit to renewable energy production. As countries decrease their dependence on the imports of energy, this may both increase the quality of environment through production of more renewable energy and reduce current account imbalances.

Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis

PurposeThis study investigates the dynamic causality linkages between fiscal deficits and selected macroeconomic indicators in a panel of five East African Community countries.Design/methodology/approachThe research design is based on panel cointegration tests, panel cross-section dependence tests, panel error correction-based Granger causality tests and panel impulse response functions.FindingsResults show that there is long-run feedback causality among fiscal deficits and each of the variables include gross domestic product (GDP) growth, current account balance, interest rates, inflation, grants and debt service. Short-run Granger causality dynamics indicate that there is feedback causality between fiscal deficits and GDP growth; no causality between fiscal deficits and inflation; no causality between fiscal deficits and current account; no causality between fiscal deficits and interest rates; feedback causality between fiscal deficits and grants; and no causality between fiscal deficits and debt service. Impulse response functions show positive and significant impacts of current account balance, inflation and grants; negative and significant impacts of real GDP growth and lending rates; and insignificant effects of debt service.Research limitations/implicationsWhile the study examines the dynamic causality between fiscal deficits and selected macroeconomic indicators in the East African Community, the analysis excludes South Sudan due to significant data limitations.Practical implicationsIn light of the East African Community's aspirations to achieve convergence on key macroeconomic targets, including the fiscal deficit, this research provides novel insights on fiscal policy determinants and causality dynamics.Social implicationsThe dynamic relationships between fiscal policy and macroeconomic variables may have social implications for welfare, equitable growth and distribution of resources.Originality/valueWith a focus on the East African Community, this paper contributes to the literature on the macroeconomic determinants of fiscal deficits in regional economic communities.

IS INDONESIA’S CURRENT ACCOUNT BALANCE OPTIMAL? EVIDENCE FROM AN INTERTEMPORAL APPROACH

This study investigates whether Indonesia’s Current Account (CA) balance is intertemporally solvent. We provide fresh evidence on Indonesia’s CA deficit solvency by considering post-crisis period data and conducting sub-sample analysis. Our findings suggest that Indonesia’s CA is not solvent. We notice evidence of excess lending prior to the global financial crisis of 2008 and excess borrowing in the postcrisis period. Policymakers need to focus on the composition of capital flows and management of volatile capital flows since discouraging foreign capital inflows may serve as a deterrent to economic growth.

THE LONG-RUN RELATIONSHIP BETWEEN HUMAN CAPITAL AND CURRENT ACCOUNT BALANCES

This study aims to find out the long-run relationship between human capital and the current account balances. The panel data analysis is carried out for the time period between 1990 and 2018. 88 developing and developed countries are included in the study. Panel cointegration analysis is applied to test the long-run relationships. The human capital is represented by two indexes. First one is The Institute for Health Metrics and Evaluation (IHME) human capital index. Second one is United Nations human development Index. For both indexes, there are significant and positive long-run relationships between the human capitals with current account balances for high income countries. And there are negative long-run statistically significant relationships for all countries, all countries except industrial countries and all countries except industrial and African countries groups.

Testing the triple deficit hypothesis for sub‐Saharan Africa: Implications for the African Continental Free Trade Area

AbstractAware of the nature of deficits in the current account, fiscal account, and the financial account balances of the countries in the sub‐Saharan Africa (SSA) region, this inquiry assessed the relationship between these deficits and the implication of such relationship for the African Continental Free Trade Area (AfCFTA). To do this, the study adopted panel data analysis techniques using the pooled mean group‐autoregressive distributed lag (PMG‐ARDL) specifications to test for the triple deficit hypothesis (TDH) in the region. The findings of the study revealed the presence of the TDH in SSA where bidirectional causality exists between current account balance and budget balance, and between saving gap and current account balance, with a unidirectional causality running from budget balance to saving gap. The adoption of sound fiscal, monetary, and trade interventions in the region constitutes the major policy recommendations.

The asymmetric effects of the current account balance on inflation

Purpose: We aim to highlight the asymmetric relationship between the current account balance and inflation via the nonlinear boundary test approach for the period 2002:01-2020:10. We analyze the Turkish economy because Turkey has started implementing a new economic policy, which mainly aims to control inflation by maintaining a current account surplus. As a result, the primary purpose of this research is to determine the influence of the current account balance on local inflation, as well as to assist in the formulation of appropriate economic policies to minimize any negative effects on the local economy. Methodology: The nonlinear boundary test approach (NARDL) is used for the 2002:01-2021:10 data period due to the possibility of long-term nonlinear relations between the inflation rate and the current account balance. Results: According to the analysis findings, there is a long-term cointegration relationship between variables. It is deduced that while there exists long-term asymmetry between the current account balance and inflation, the coefficients themselves are not statistically significant, and magnitudes are negligible. However, the effect of dollarization and the lagged values of the CPI on current inflation are statistically significant and substantial, which underpins the importance of inflation inertia, inflation expectations, and the pass-through effect. Conclusion: With a view to stabilizing inflation, policymakers should prevent dollarization by taking the necessary measures.

Determinants of De Jure – De Facto Exchange Rate Regime Gaps

Abstract This paper investigates inconsistencies between countries’ official exchange rate regime declarations (the so-called de jure exchange rate regimes) and their actual policy (de facto exchange rate regimes). These exchange rate regime gaps decrease the credibility of monetary policy and are considered an overall negative economic phenomenon. In this paper, I attempt to disclose the determinants of these gaps using the data on several de facto classifications and a wide array of explanatory variables of economic and institutional nature. The results suggest that a number of macroeconomic factors such as foreign exchange reserves, current account balance and economic openness influence the probability of monetary authorities breaking commitment to their official exchange rate regime. At the same time, I also discover that the exchange rate regime gaps are less frequent in more democratic and institutionally advanced countries although the results tend to differ depending on the de facto classification used and the nature of gap (either de jure floating – de facto fixed or de jure fixed – de facto floating).

THE STRUCTURAL RELATIONSHIP BETWEEN FISCAL DEFICIT AND CURRENT ACCOUNT DEFICIT IN INDIA: SVAR ESTIMATION OF THE TWIN DEFICIT HYPOTHESIS

This paper tests the validity of the twin deficit hypothesis, the causal relationship between fiscal deficit (FD) and current account balance (CAB), in India for the period 1994-2016 by estimating a structural model that includes the interest rate and exchange rate as an interlinking variable. The SVAR estimates show a negative effect implying that a positive shock given to FD worsens the CAB. The current account deficit, while not directly determined by fiscal deficit, is significantly influenced by RIR and REER. The IRF indicates that a positive shock to FD leads to an increase in the domestic interest rate which appreciates the real exchange rate of the domestic currency making the exports costlier and imports cheaper and thereby widening the current account deficit. The SVAR, IRF and Granger causality analyses show that fiscal deficit affects the current account balance in India through the interlinking variables RIR and REER for the time period 1994 (quarter-I) to 2016 (quarter-IV). This result validates the relevance of the twin deficit hypothesis in the Indian economy and is consistent with the Keynesian proposition in the Indian economy during the study period.

IDENTIFICATION OF COVID-19 PANDEMIC INFLUENCE ON COUNTRY MACROECONOMIC STABILITY

During 2020-2021 the world community united the efforts to counteract the destructive impact of the COVID-19 pandemic not only on the life and health of the population but also on the state of country macroeconomic stability. The main task faced by the representatives of state authorities at the stage of the active development of the pandemic was the development and implementation of effective and quick tools to contain the spread of the coronavirus infection along with interventions to maintain the business and population well-being. In turn, during 2020-2021 scientists from all over the world focused their efforts on a multifaceted analysis of the causes, features and consequences of the pandemic in various spheres of life. The main goal of this study is to analyze the impact of the COVID-19 pandemic on the main parameters of the country macroeconomic stability and formalize the changes in patterns of this impact for a sample of European countries. The analysis was conducted for a sample of 15 European countries, including: Albania, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Moldova, Poland, Romania, Serbia, Slovakia, Slovenia and Ukraine during 2015–2021. The time range of the study covers both the pre-pandemic period and pandemic period. This will make it possible to assess the margin of macroeconomic stability in the countries before the outbreak of the pandemic, to reveal the scale of its destructive influence during the active stage of the pandemic, and also to find out the key changes in the analyzed parameters of macroeconomic stability in the pandemic and pre-pandemic periods. The literature review on a certain topic conducted in the work revealed that the most relevant indicators of the state of macroeconomic stability are GDP growth, %; the level of employment of the population, calculated according to the methodology of the International Labor Organization, %; consumer price index, %; current account balance, % of GDP. To fulfill the task set within the scope of the work, several stages were implemented: 1) determination by means of statistical analysis with calculation of the average levels of the relevant indicators for the sample of countries, their chain and base growth rates of the patterns of change in the determinants of macroeconomic stability in the countries included in the sample, in the pre-pandemic and pandemic period periods; 2) performing a cluster analysis using Ward clustering and constructing dendrograms in the Stata 14.2/SE software product for a selected group of countries in 2015, 2019, 2020 and 2021; 3) determination of patterns of macroeconomic stability in 15 European countries and patterns of their change caused by the impact of the COVID-19 pandemic. The results of the statistical and cluster analysis generally show that the COVID-19 pandemic has damaged the macroeconomic stability of the 15 European countries but the scale of the destructive impact is not the same: countries with a greater margin of strength and stability of macroeconomic indicators in the pre-pandemic period more easily passed the stage of high turbulence caused by the coronavirus pandemic, while states that were characterized by macroeconomic instability for several years before the pandemic suffered more devastating consequences in 2020-2021. According to the results of the study, it was established that the pandemic had the most detrimental effect on the state of macroeconomic stability in Croatia and Slovenia, which led to a change in patterns of the ratio of determinants of macroeconomic stability and their transition in 2021 to a worse cluster, while Slovakia even moved to a more stable cluster in 2020-2021. The obtained research results can be useful both to representatives of state authorities in the context of the formation of a post-pandemic recovery strategy, and to representatives of the academic community – for deepening scientific research in this direction.

Persistent Current Account Deficits and Balance of Payments Crises

Persistent Current Account Deficits and Balance of Payments Crises

Étude empirique des « déficits jumeaux » pour le cas du Sénégal

Cet article vise à vérifier l'hypothèse de neutralité ricardienne au Sénégal, à travers de l'existence ou non du phénomène des « déficits jumeaux ». L'objectif visé dans ce travail était d'étudier la corrélation entre le déficit budgétaire et le déficit du compte courant. La revue de la littérature théorique est axée sur les approches d'équivalence ricardienne et conventionnelle (classique et keynésienne) portant sur les effets de l'endettement public sur l'économie réelle. La revue de la littérature empirique a permis de revenir sur certaines applications par pays ou données de panel pour confirmer ou infirmer l'hypothèse de neutralité par une vérification de l'existence ou non du phénomène des déficits jumeaux. Ainsi, l'approche méthodologique adoptée est le test de cointégration des deux variables à travers l'utilisation du modèle à correction d'erreurs (MCE) suivant la méthode d'Engle et Granger (1987). Nos résultats indiquent une absence de cointégration entre les variables déficit budgétaire et solde du compte courant et donc de relation d'équilibre sur la période étudiée, entre ces deux variables, d'où une acceptation de la Proposition d'équivalence Ricardienne sur la période 1991-2020. Aussi, ce résultat s'identifie à la vérification de la Proposition d'Equivalence Ricardienne (PER) pour le Sénégal.

THE IMPACT OF FOREIGN DIRECT INVESTMENT ON CURRENT ACCOUNT BALANCE: EMPIRICAL EVIDENCE FROM DEVELOPING ASIAN ECONOMIES

Foreign Direct Investment is considered as a desirable source of capital inflows for developing economies. Developing Asia has become the world’s largest host for FDI and received about half of the global FDI inflows (WIR, 2021). Most of the vacant literature on FDI has highlighted its positive contribution towards host economy, however the present study identified the negative bearing of inward FDI on current account balance of the host economy. The present study has used the date for developing Asia from 1980 to 2020 on the study variables and ARDL approach to cointegration is employed to identify the long run relationship between study variables. The data is obtained from the database of United Nations Conference on Trade and Development (UNCTAD). Current account deficit is taken as dependent variable. For explanatory variables, log form of inward FDI, log of GDP and log of Trade Openness (TO) are used. Based on the empirical investigation it is concluded that inward FDI can increase the current account deficit of FDI host economies. As policy suggestion it can be suggested that for developing Asia inward FDI should be sector specific that can upsurge the exports of the country instead increasing the imports of the recipient economy. Key Words: FDI, Current Account Balance, Developing Asia, ARDL. JEL Classification Codes: F21, F32, C23