Decomposing and Analysing the Determinants of Current Accounts’ Cyclicality: Evidence from the Euro Area

Afonso, António; Jalles, João Tovar

doi:10.1007/s11079-018-9503-2

Cited by 5 publications

(15 citation statements)

References 18 publications

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“…The empirical strategy is based on the Phillips et al ( 2013 ) model, which is used by Afonso and Jalles ( 2019 ) and Mohanty ( 2019 ) to establish the link between fiscal policy and external balance, and specifically produces the equation as: …”

Section: Methodsmentioning

confidence: 99%

“…The analysis quantifies the impact of the real effective exchange rate, predicted real growth, and terms of trade in explaining the current account balance. In recent research, Afonso and Jalles ( 2019 ) seek to dissect the current account balance into cyclical and non-cyclical components. In a study of 19 Euro area countries, these authors uncover the negative effects of terms of trade on both components, while showing that employee wages, level of employment, and global financial crises have a negative impact on only the cyclical component.…”

Section: Review Of Literaturementioning

confidence: 99%

“…test. The empirical strategy has been calibrated using the empirical models of Duasa ( 2007 ), Phillips et al ( 2013 ), Mohanty ( 2019 ), and Afonso and Jalles ( 2019 ). There were two different models developed, one with the current account balance as the dependent variable and the other with the balance of trade.…”

Section: Introductionmentioning

confidence: 99%

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A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

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The main economic challenge is rising aggregate demand, which leaves the economy short on resources and leads to expanding fiscal and external account deficits. The current study uses autoregressive distributed lag (ARDL) model to evaluate the twin deficit hypothesis in the context of Pakistan in an effort to find an answer to this question. The study uses augmented ARDL, popularized by McNown et al. (Appl Econ 50:1509–1521, 2018) and Sam et al. (Econ Model 80:130–141, 2019), to address the degenerate problems that might arise while applying the ARDL approach. Two separate models were estimated, one with the current account balance as the dependent variable and the other with the balance of trade. In the long run, both models confirm the conventional interpretation of twin deficit hypothesis in Pakistan, with the causality running only from the fiscal deficit to the balance of trade. Other control variables in both models are crucial in understanding the current account balance and balance of trade. According to models, an increase in the exchange rate, as measured by the log of the nominal effective exchange rate, improves both current account and trade balance, verifying the elasticity approach in the long run. The openness of the economy is found to worsen current account balance, and the result is statistically significant. Contrarily, openness has been improved trade balance, but the result is statistically insignificant. To control a large and persistent external deficit, the government has to reduce its fiscal deficit, and such a strategy would be successful when monetary policy is accommodative.

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Section: Methodsmentioning

confidence: 99%

Section: Review Of Literaturementioning

confidence: 99%

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A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

View full text Add to dashboard Cite

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“…Riaz, Javid, and Mubarik (2019) investigated this issue for South Asian Economies and concluded that domestic income and foreign assets play a crucial role in this regard. Afonso and Jalles (2019) focused on investigating the determinants of variation in CAB in nineteen Euro countries. They, first, divided the whole sample into two broader categories, cyclical-sample, and non-cyclical sample, and second, they calculated the exports-elasticities and import-elasticities with respect to income for each country one by one.…”

Section: Graph 1: Cad As % Of Gdpmentioning

confidence: 99%

Empirical Analysis of the Factors affecting Current Account Deficit in Pakistan

Minhajuddin

Bakhsheesh

Khan

2020

GER

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The maintenance of a balanced current account is among the enormous challenges faced by most of the developing economies. This study seeks to examine the determinative factors of the current account deficit in Pakistan over the period of 1976-2020.Assessment of these factors has been made within the stipulated structure of the ARDL model.Findings reveal that fiscal sustainability, sustainable economic growth, controlled inflation,and growth in gross saving are the reasons that help in stimulating the current account balances in the long run. This study also finds that exchange rate, money supply, and TOT were unable to change the position of the current account. Based on the empirical findings, it is recommended that government should concentrate on recognitions of channels that help in boosting the government revenue, accelerating the growth process, stimulating the gross saving, and maintaining a moderate level of inflation.

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“…In this regard, Carrasco (2018) concludes that countries such as Belgium, Germany, Luxembourg, and the Netherlands have structural external surpluses, whereas Greece, Portugal and Spain have structural external deficits. Afonso and Jalles (2018) report a negative effect of the Global Financial Crisis on the cyclical component of the current account for Italy, Ireland, Portugal, Spain, and Latvia. As of 2010, with the sovereign debt crisis in Greece and the subsequent contagion to other peripheral economies (see Lane, 2012), the external imbalances verified in some Eurozone countries faded, especially in deficit countries.…”

Section: Introductionmentioning

confidence: 99%