Methodological Issues in the Estimation of Current Account Imbalances

43 Pages Posted: 24 May 2021

Date Written: April 22, 2021

Abstract

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.

Keywords: 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

JEL Classification: F00, F20, F32, F41

Suggested Citation

Della Corte, Valerio and Giordano, Claire, Methodological Issues in the Estimation of Current Account Imbalances (April 22, 2021). Bank of Italy Occasional Paper No. 617, Available at SSRN: https://ssrn.com/abstract=3852292 or http://dx.doi.org/10.2139/ssrn.3852292

Valerio Della Corte

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Claire Giordano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
86
PlumX Metrics