External Balance Assessment (EBA)

The IMF's Research Department has developed the External Balance Assessment (EBA) methodology for assessing current accounts and exchange rates. The EBA methodology, originally developed in 2013, was modified in 2015 by extending the sample used in estimation (from 2010 to 2013), allowing nonlinearities in the impact of demographics, and adding the REER level model to the EBA toolkit. A more comprehensive review of the methodology took place in 2018, with the changes focused on (i) further extending the sample used in estimation (from 2013 to 2016); (ii) improving the modeling of certain fundamentals—demographics, the measurement of external positions, and institutional quality—and macroeconomic policies—foreign exchange intervention and credit excesses; and (iii) developing complementary tools to inform the role that structural and trade policies could play in explaining current account imbalances. A further review of the methodology took place in 2022, with the changes focused on (i) extending the sample used in estimation (until 2019, and including three additional countries); (ii) improving the construction of the terms-of-trade and oil and gas reserves variables, (iii) including an IMF staff-produced measure of capital controls; and (iv) simplifying the regression models by only keeping current account and exchange rate determinants that are statistically robust. A description of the latest generation of the EBA models can be found in the IMF Working Paper No. 2023/047, issued on March 3, 2023.