Determinants of Current Account Imbalances in 16 OECD Countries: An Out-Of-Sample Perspective |
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Authors: | Helmut Herwartz Florian Siedenburg |
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Affiliation: | (1) Institute for Statistics and Econometrics, Christian-Albrechts-University of Kiel, Olshausenstr. 40-60, 24118 Kiel, Germany |
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Abstract: | We employ panel data as well as country-specific models to uncover empirically the determinants of current account imbalances. We find evidence of slope heterogeneity likely rendering the fixed-effect estimator inconsistent. Mean group estimation is followed to overcome the latter difficulty. Both estimation techniques are evaluated by means of in- and out-of-sample criteria. The mean group estimator outperforms the fixed-effect approach and, moreover, only three economic variables are found to impact on the current account balance significantly. These are the government budget balance, the domestic output gap and the changes of the terms of trade. We finally propose a parsimonious dynamic model of the current account, including only these variables and illustrate that it has similar predictive accuracy as country-specific benchmark models. JEL no. F32, C23, C53 |
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Keywords: | Current account dynamics panel data models heterogeneity prediction |
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