An Anatomy of the Spanish Current Account Adjustment: The Role of Permanent and Transitory Factors

34 Pages Posted: 2 Nov 2017

See all articles by Enrique Moral-Benito

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Francesca Viani

Banco de España

Date Written: October 31, 2017

Abstract

This paper aims to identify how much of the recent current account adjustment in Spain can be explained by cyclical factors. For this purpose, we consider the cross-country regressions in the IMF’s External Balance Assessment (EBA) methodology but allowing for country-specific slopes and intercepts. The good fit of these regressions implies negligible residuals for most countries, and, as a result, the positive analysis of current account decompositions provides a more informative assessment of the external balance drivers. According to our findings, around 60% of the 12 pp. adjustment of the Spanish external imbalance over the 2008-2015 period can be explained by transitory factors such as the output gap, the oil balance, and the financial cycle. The remaining 40% is explained by factors such as the cyclically-adjusted fiscal consolidation, population aging, lower growth expectations, or competitiveness gains, which can all be considered as more permanent phenomena.

Keywords: current account, global imbalances

JEL Classification: F21, F32, F41

Suggested Citation

Moral-Benito, Enrique and Viani, Francesca, An Anatomy of the Spanish Current Account Adjustment: The Role of Permanent and Transitory Factors (October 31, 2017). Banco de Espana Working Paper No. 1737. Available at SSRN: https://ssrn.com/abstract=3062762 or http://dx.doi.org/10.2139/ssrn.3062762

Enrique Moral-Benito (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Francesca Viani

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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