Adjusting the External Adjustment: Cyclical Factors and the Italian Current Account
29 Pages Posted: 3 Nov 2016
Date Written: July 21, 2016
We investigate the role of cyclical factors in the adjustment of Italy’s external balance from 2010, developing a model that infers the potential levels of domestic demand and of imports and exports from an exogenous measure of potential output, in an internally coherent fashion and also taking composition effects into account. According to our results, in 2015 Italy’s cyclically-adjusted current account surplus came to about 0.5 percentage points of GDP; the overall external rebalancing of the Italian economy has largely been of a non-cyclical nature, with a positive contribution from the decline in the prices of energy commodities. By applying our methodology to the other major euro-area countries, we find that current account imbalances over the recent period are amplified when assessed in cyclically-adjusted terms.
Keywords: current account, business fluctuations, macroeconomic imbalances, output gap
JEL Classification: F32, F32, F40
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