Open Economies Review

, Volume 30, Issue 1, pp 133–156 | Cite as

Decomposing and Analysing the Determinants of Current Accounts’ Cyclicality: Evidence from the Euro Area

  • António AfonsoEmail author
  • João Tovar Jalles
Research Article


In this paper, we decompose the current account (CA) balance in 19 Euro area countries into cyclical and non-cyclical components. For the period 1999:Q1 to 2015:Q4, we compute income elasticities of imports and of exports via an alternative novel and improved approach by running time-varying coefficient models country-by-country. Then, in a panel set-up (and controlling for country-invariant characteristics), we uncover that terms of trade have a positive effect on both the cyclical and non-cyclical components of the CA, while the Global Financial Crisis, compensation of employees and the employment level have a negative effect on the cyclical component. Moreover, the crisis had a greater impact on the cyclical component of the CA due to movements in the real effective exchange rate. In addition, we find a negative effect of the crisis on the cyclical component of the CA for countries that received financial assistance from the European Union, notably Ireland, Portugal, Spain and Latvia.


Current account cyclicality Financial markets Time-varying coefficients 

JEL Classification

C23 F32 G01 



We thank two anonymous referees for useful comments and suggestions in an earlier version of the paper. Thanks also go to Luis Catão for useful comments. Any remaining errors are ours alone. The opinions expressed herein are those of the authors and do not reflect those of their employers.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Economics; REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and EconomicsISEG/UL - Universidade de LisboaLisbonPortugal
  2. 2.UECE – Research Unit on Complexity and Economics, Centre for Globalization and GovernanceNova School of Business and EconomicsLisbonPortugal

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