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Current Account
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This paper uses two different criteria - a set of macroeconomic indicators and the intertemporal model of the current account - to examine the excessiveness and sustainability of Nigerian current account deficits over the period 1960-2003. Our analysis shows excessive reliance on oil revenues, misperception of temporary increases in oil prices as permanent ones and structural weaknesses of the economy resulting in unsustainable current account deficits and external crisis, necessitating the adoption of the Structural Adjustment Program in 1986. However, both the macroeconomic indicators and the intertemporal model point to an improved current account position over the past decade. The paper also presents empirical results from the application of the Present Value Model of the Current Ac...
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Sustaining balanced current accounts is a tremendous challenge that faces many developing countries. The growing gap between burgeoning imports for domestic consumption and investment needs and exports from uncompetitive export sectors in many of these countries usually generate current account deficits. This paper tests the long-run sustainability of current account deficits in Egypt, Morocco and Tunisia using the bounds testing approach to cointegration. While the bounds test detects cointegration between exports and imports in three countries, the estimated coefficients of imports variables are correctly signed and statistically significant only in cases of Egypt and Tunisia. Additionally, the null hypothesis of unity coefficient of imports variable is strongly rejected in cases of E...
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In recent years, the U.S. external deficit has attracted considerable attention from academics, policymakers and the media. One manifestation of recent trends that has raised concerns is a growing trade deficit - the difference between U.S. exports and imports of goods and services. A fundamental question is: How dangerous is the current account deficit? Provided that U.S. monetary and fiscal authorities maintain sound policies, the hard-landing scenario seems unlikely. The necessary current account adjustment can be fairly slow and orderly, and it may not begin for quite some time. The current account deficit, some say, is "financed" by U.S. borrowing abroad. In fact, international investors buy U.S. assets not for the purpose of financing the U.S. current account deficit but because t...
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Household wealth is shown to have a substantial impact on the current account through the wealth effect on savings. Private savings and wealth are estimated to share a negative relationship in the long run. Further, the impact of wealth changes on private savings takes several years, given an adjustment half-life of nearly 2 years. The reductions in private savings, due to changes in household wealth, reduce domestic savings. The increased inflow of foreign savings from the reduction in domestic savings is shown to have a negative effect on the current account balance. Two simulations demonstrate that small changes in the growth rate of wealth can have sizeable impacts on current account movements, altering the current account as apercent of GDP by as much as two percentage points. For ...
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The deficit in the broadest measure of American trade and international economic activity fell during the third quarter, setting the stage for a much bigger decline next year. The U.S. current-account deficit, which includes investment flows as well as trade in goods and services, declined 3.7 percent during the July-September period to $174.1 billion, the Commerce Department reported Wednesday.
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This study examines two distinguishing predictions of the finite-horizon open-economy macroeconomic models regarding the effect of fiscal policy on the current account balance: (1) Given the path of government expenditures, a fall in public savings has an adverse effect on the current account balance, and (2) a bond-financed increase in government expenditures exerts a larger adverse effect on the current account balance than a tax-financed alternative. These predictions are vastly different from those of the Ricardian theory. According to this view, (1) lower public savings are met by equal increases in desired private savings, and thus the current account balance does not change, and (2) the response of current account balance to a change in government spending is independent of its f...
