On the Relation between Capital Flows and the Current Account

Abstract

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A Panel VAR Analysis of Macro-Financial Imbalances in the EU

“…The latest sub-group concerns non-euro area member states, 54 in order to compare our results for the euro area with countries with a di¤erent currency. The outcome appears to be very much in ‡uenced by the presence of CEE new member states in the sample.…”

A panel VAR analysis of macro-financial imbalances in the EU

“…1 2 We do have a dummy for the years after 2008, in order to control for a possible break after the beginning of the global crisis. 1 3 As in Oeking and Zwick (2015), the …nancial account Granger-causes the current account during economic upturns (data on OECD countries). More speci…cally, short-term ‡ows seem to …nance the current account during economic downturns, while inducing its changes during upturns.…”

“…Other sub-groups and GDP growth results The latest sub-group concerns non-euro area member states, 54 in order to compare our results for the euro area with countries with a di¤erent currency. The outcome appears to be very much in ‡uenced by the presence of CEE new member states in the sample.…”

An examination of the causality relationship between current and financial accounts in Turkey

“…More recent research has also clearly indicated a causal relationship from capital account to financial account. Oeking and Zwick (2015) analyse the relationship between current account balance and capital movements for 23 selected OECD countries, examining quarterly data between 1990 and 2013 using the Granger causality test. The empirical results show that in the OECD countries current account developments generally determine movement in the financial account.…”

“…Nevertheless, determining the source of the increase in total demand is a crucial issue in identifying the direction of the causality relationship between capital and current account. One group of economists claims that foreign capital is required to finance a growing current account deficit based on expanding domestic demand, which results in changes in the financial account (Higgins and Klitgaard 1998;Lau and Fu 2011;Oeking and Zwick 2015;Urbanovsky 2017). Thus, any increase in domestic demand, whether from the private or the public sector, causes a deficit in the current account, whereupon foreign capital is needed to finance this deficit in the current account.…”