International macroeconomic fluctuations and the current account

Abstract

Intertemporal models of the current account generally assume that globalshocks do. not affect the current account. We use this assumption toidentify global and country-specific shocks in a bivariate VAR of outputand the current account. Cross-country evidence from the G7 economiessuggests that this identification works surprisingly well. We thenemploy our method to collect stylized facts on internationalmacroeconomic fluctuations. We find that long-term output growth isdriven mainly by global factors in most G7 countries and thatcountry-specific shocks are less persistent and generally less volatilethan global shocks.