An anatomy of the Spanish current account adjustment: the role of permanent and transitory factors

Moral-Benito, Enrique and Viani, Francesca (2017): An anatomy of the Spanish current account adjustment: the role of permanent and transitory factors.

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 a variant of the External Balance Assessment (EBA) methodology with country-specific slopes and intercepts. The resulting residuals are negligible for most countries so that the positive analysis of current account decompositions provides a more informative assessment. 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: current account, global imbalances.
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements

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