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

29 Pages Posted: 3 Nov 2016

Date Written: July 21, 2016

Abstract

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

Suggested Citation

Fabiani, Silvia and Federico, Stefano and Felettigh, Alberto, Adjusting the External Adjustment: Cyclical Factors and the Italian Current Account (July 21, 2016). Bank of Italy Occasional Paper No. 346. Available at SSRN: https://ssrn.com/abstract=2863912 or http://dx.doi.org/10.2139/ssrn.2863912

Silvia Fabiani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Stefano Federico

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alberto Felettigh

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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