The Current Account and the New Rule in a Not-So-Small Open Economy

2008 ◽  
Author(s):  
Iñaki Erauskin-Iurrita
Keyword(s):  
Current Account ◽  
Open Economy ◽  
Small Open Economy ◽  
The Current Account

scholarly journals DYNAMIC EFFECTS OF OIL PRICE SHOCKS AND THEIR IMPACT ON THE CURRENT ACCOUNT

2013 ◽  
Vol 18 (2) ◽  
pp. 316-337 ◽  
Author(s):  
Stefan F. Schubert
Keyword(s):  
Current Account ◽  
Open Economy ◽  
Small Open Economy ◽  
Oil Price ◽  
Dynamic Effects ◽  
Price Shocks ◽  
J Curve ◽  
Nonseparable Preferences ◽  
Imported Oil ◽  
The Current Account

We study the dynamic effects of an oil price shock on key economic variables and on the current account of a small open economy. We introduce time-nonseparable preferences into a standard model of a small open economy, where imported oil is used both as an intermediate input in production and as a consumption good. Using a plausible calibration of the model, we show that the changes in output and employment are quite small, and that the current account exhibits the J-curve property, both being in line with recent empirical evidence. After an oil price increase, employment falls and the current account first deteriorates. Over time, with gradually falling expenditures, the trade balance improves sufficiently to turn the current account into a surplus. The model thus provides a plausible explanation of recent empirical findings.

scholarly journals The Influence of Taxes on Inflows and Outflows of Foreign Direct Investment

2020 ◽  
Vol 6 (3) ◽  
pp. 244-255
Author(s):  
I. M. Drapkin ◽  
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Open Economy ◽  
Small Open Economy ◽  
Current Account Balance ◽  
Currency Board ◽  
Twin Deficits ◽  
State Budget ◽  
Fiscal Balance ◽  
The Current Account

Macroeconomic management of a small open economy in a currency board arrangement faces two serious problems: first, under a fixed exchange rate, fiscal policy is the only effective macroeconomic instrument for smoothing out the business cycle; second, the twin deficits phenomenon, if it exists, may jeopardize the stability of the currency board arrangement. This paper uses quarterly seasonally adjusted Eurostat data for the period of 1999–2019, the Hodrick–Prescott filter and a vector autoregression (VAR) to answer the three questions that are of utmost importance to Bulgarian policy-makers: first, is the discretionary fiscal policy of the Bulgarian government procyclical or countercyclical? Second, do the automatic stabilizers in the Bulgarian state budget function properly? Finally, is the twin deficits hypothesis valid for Bulgaria? Our findings imply that the fiscal discretion of the Bulgarian government is procyclical, while the automatic fiscal stabilizers do not work effectively. The first part of the twin deficits hypothesis (the causal link between the fiscal balance and the current account balance) is confirmed but the second part of the twin deficits hypothesis (the positive relationship between the fiscal balance and the current account balance) is rejected for Bulgaria. It may be inferred that both sides of the Bulgarian state budget (revenue and expenditure) need to be improved in order to increase the effectiveness of Bulgaria’s fiscal policy. Low budget deficits (not higher than 3% of GDP) are recommended for improving the current account balance and encouraging economic growth.

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