Energy price shocks and current account balances: What role for economic structure, energy dependency and renewable energy development?

Abstract

This paper examines the influence of energy price fluctuations on the current account balances of 47 countries between 1995 and 2023, with a particular focus on the varying responses contingent on countries' economic profiles, energy dependence, and the moderating impact of renewable energy development. The study employs a global vector autoregression (GVAR) model to elucidate the intricate interdependencies intrinsic to the global economy. The findings indicate that oil, natural gas, and coal price shocks have a positive impact on the current account balances of energy exporting countries and a negative impact on those of energy importing countries. This effect is more pronounced in countries with a higher level of energy dependency, while the development of renewable energy sources plays a role in mitigating the adverse effects of energy price volatility. In terms of economic characteristics, countries with a structural current account surplus, a higher level of development, a large services sector, a more open capital account, and a flexible exchange rate regime are less affected by energy price shocks.