An anatomy of the Spanish current account adjustment: the role of permanent and transitory factors
Series: Working Papers. 1737.
Author: Enrique Moral-Benito and Francesca Viani.
Publicado en: SERIEs.
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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.