## Dominant Drivers of Current Account Dynamics

_IMF Working Papers, April 26, 2024_

## Source details

**Canonical URL:** [Dominant Drivers of Current Account Dynamics](https://www.imf.org/en/publications/wp/issues/2024/04/26/dominant-drivers-of-current-account-dynamics-548374)

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## Bibliographic details
- Authors: Lukas Boer, Jaewoo Lee
- Published: April 26, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400274961.001

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### Summary and main findings
- We estimate shocks that explain most of the variation in the current account at business cycle frequencies and over the long run.
- Using a standard open-economy macro model, we explore which macroeconomic shocks are behind the empirical dominant drivers of the current account at business-cycle frequency.
- Shocks to the relative demand between home and foreign goods are found to play a pivotal role in current account dynamics.
- Rather than financial shocks or aggregate shocks to supply or demand, relative-demand shocks primarily drive current account movements at business-cycle frequency.

### Methodology overview
- Empirical estimation of shocks that account for the bulk of current account variation at business-cycle frequencies and over the long run.
- Structural exploration using a standard open-economy macro model to map empirical dominant drivers to macroeconomic shock types.
- Focused comparison across financial shocks, aggregate supply shocks, aggregate demand shocks, and relative-demand shocks.

### Key statistics and bibliographic data
- Authors: Lukas Boer, Jaewoo Lee
- Publication date: April 26, 2024
- Series: Working Paper No. 2024/092
- Issue: 092
- Volume: 2024
- Pages: 47
- DOI: https://doi.org/10.5089/9798400274961.001
- Stock No: WPIEA2024092
- ISBN: 9798400274961
- ISSN: 1018-5941

### Subject classification and keywords
- Subject: Balance of payments, Business cycles, Current account, Current account balance, Economic growth, Exchange rates, Foreign exchange, Nominal effective exchange rate
- Keywords: Business cycles, business-cycle frequency, CA shock, Current Account, Current account balance, current account dynamics, Exchange Rates, Global, IMF working paper 24/92, impulse response, Nominal effective exchange rate, Open- Economy Model, Relative Demand

### Implications for analysis and policy (inferred from findings)
- Analytical focus on relative-demand shocks is critical for understanding current account dynamics at business-cycle frequencies.
- Policy analysis and forecasting should incorporate measures of relative demand between domestic and foreign goods, alongside traditional financial and aggregate shock assessments.

*IMF Working Papers — Dominant Drivers of Current Account Dynamics (Lukas Boer; Jaewoo Lee), April 26, 2024.*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/04/26/dominant-drivers-of-current-account-dynamics-548374_