What Affects the Current Account: The Role of the Government Primary Balance and Productivity Shocks?

Abstract

This paper investigates the impact of country-specific and the global government primary balance and productivity shocks on current account balances and investment using an intertemporal model in selected OECD countries for the period 1995-2016. By employing a fixed effect approach, results indicate that current accounts are more sensitive than investments to a change in the global government budget balance. Innovation in global productivity also has a positive impact on current accounts.