Adjusting the External Adjustment: Cyclical Factors and the Italian Current Account

Fabiani, Silvia; Federico, Stefano; Felettigh, Alberto

doi:10.2139/ssrn.2863912

Cited by 3 publications

(4 citation statements)

References 13 publications

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“…It is known that the latter figures vary significantly across institutions, given the high uncertainty surrounding these measures, and the resulting cyclical adjustment terms of the CA can therefore turn out to be different. As an example, in the twenty years from 2000 to 2019 the domestic output gap estimated by the EC was on average half a percentage point (in GDP terms) lower than that estimated by the Bank of Italy (which are those used by Fabiani et al, 2016). 10 If the EC had assumed the same domestic output gap as that of the Bank of Italy, the cyclical adjustment would have been 0.1 percentage points of GDP larger, ceteris paribus (i.e.…”

Section: Computing the Cyclically-adjusted Ca Balancementioning

confidence: 83%

“…The Bank of Italy (Fabiani et al, 2016) overcomes this last issue by developing a model that posits that real imports are isoelastic (i.e. present a constant elasticity relative) to a reducedform import-intensity-adjusted demand (IAD) variable, in turn a convex combination of both exports and domestic demand.…”

Section: Computing the Cyclically-adjusted Ca Balancementioning

confidence: 99%

“…Based on the empirical findings inBussière et al (2013), for exampleFabiani et al (2016) assumes θX = 1.896 and θ IAD M = 1.592. for Italy.10 In turn, the methodology underlying the output gaps estimated at the Bank of Italy is discussed inBassanetti et al (2010).…”

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confidence: 99%

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Methodological Issues in the Estimation of Current Account Imbalances

Corte

Giordano

2021

SSRN Journal

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The study outlines the main challenges when setting up a "current account (CA) model" in order to measure external imbalances. This model is a reduced-form relationship between the CA balance and a set of CA fundamental and policy drivers, from which a CA "norm" may be derived and against which the actual CA balance is appraised. After having formally outlined a standard CA model similar to those developed by the main international institutions, the paper raises several concerns in CA modelling, amongst which the measurement and selection of both the dependent and explanatory variables and some technical issues in the estimation procedure. Recent trends affecting the CA balance, such as the expansion of global firms and the rise in corporate saving, as well as the outbreak of the COVID-19 pandemic, are also discussed. The paper does not prescribe fully-fledged solutions to the manifold issues discussed, but rather aims to raise awareness of the latter, as well to provide some hints on how to tackle at least some of these challenges.

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Section: Computing the Cyclically-adjusted Ca Balancementioning

confidence: 83%

Section: Computing the Cyclically-adjusted Ca Balancementioning

confidence: 99%

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Methodological Issues in the Estimation of Current Account Imbalances

Corte

Giordano

2021

SSRN Journal

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“…Krishnamurthy et al 2014). 3 Finally, a third motivation can be found in the growing interest for cyclically adjusted estimates of the current account, particularly so in the current post-crisis period of external-rebalancing; estimation models are typically focused on the "real" part of the current account (goods and, sometimes, services), disregarding the effects of the cycle on the income component of the current account via interest rates (Fabiani et al 2016;Haltmaier 2014). An operational decomposition framework of the investment income dynamics is a preliminary step in the direction of integrating the income component -whose importance within the current account increased in the recent years -in cyclically adjusted estimates, for a comprehensive analysis of external rebalancing.…”

Section: Introduction and Review Of The Literaturementioning

confidence: 99%

The Evolution of Italy's Investment Income Balance

Oddo

Tosti

2017

SSRN Journal

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This paper analyses the evolution of Italian investment income flows in relation to the corresponding financial stocks in the international investment position. The period under scrutiny is from 1999 to 2016, covering all developments since the beginning of monetary union. The analysis is based on a decomposition framework which allows us to disentangle investment income changes into three elements: (i) variations due to changes in the international investment position (stock effect); (ii) variations due to changes in the yields accruing to the underlying stocks (yield effect), and (iii) variations due to changes in the financial instrument composition of assets and liabilities (composition effect). The most important driver of Italy's investment income balance variations is the yield effect. The stock and the composition effects are less significant: the former effect contributed to the worsening balance of payments in the first half of the period but waned thereafter; the latter effect strengthened after 2008. Applying this analytical framework to the other three main euro-area countries confirms the key role of the yield effect in shaping the short-term dynamics, and shows the different role of stock and composition effects in shaping the longer-term dynamics.JEL Classification: F21, F32.

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A reassessment of external demand’s contribution to Malta’s economic growth

Grech

Rapa

2019

Economic Structures

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Over the last decade, the Maltese economy experienced the second-fastest rate of growth amongst EU countries. This has coincided with the emergence of a number of new export-oriented services sectors, such as online gaming, and a pronounced expansion of existing ones, such as aviation services, which have had a significant impact on the islands' main macroeconomic indicators (Grech et al. 2016). This followed the entry of Malta into the European Union, which meant that services firms locating in the islands could now access the single market. Exports of goods and services, in fact, grew by 67% in real terms over the last decade, such that they stood at 133% of GDP. This is the second highest ratio observed amongst all EU countries. However, the method typically used to compute contributions to economic growth have been suggesting that the influence of exports has been somewhat muted. For instance, in 2015, despite exports of goods and services rising by nearly half a billion euro-the equivalent of a quarter of all government current expenditure during that year-the contribution of net exports to real economic growth was deemed to be significantly negative (see European Commission 2016 and Central Bank of Malta 2016). This result was driven by the fact that during that year, there was an exceptional rise

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Adjusting the External Adjustment: Cyclical Factors and the Italian Current Account

Cited by 3 publications

References 13 publications

Methodological Issues in the Estimation of Current Account Imbalances

Methodological Issues in the Estimation of Current Account Imbalances

The Evolution of Italy's Investment Income Balance

A reassessment of external demand’s contribution to Malta’s economic growth

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