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On the link between current account and oil price fluctuation in diversified economies: The case of Canada

Author

Listed:
  • Blaise Gnimassoun

    (University of Lorraine - BETA UMR CNRS 7522, France)

  • Marc Joets

    (Banque de France, International Macroeconomics Division, France)

  • Tovonony Razafindrabe

    (CREM, UMR CNRS 6211, Université de Rennes 1, France)

Abstract
This study revisits the important link between oil prices and current account for oil exporting countries by paying a particulary attention to the time-varying nature of this link. To this end, we rely on an innovative methodology which is the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has a non-significant impact on the current account, an oil demand shock has a positive and significant impact which tends to increase over time. In addition, by studying the economic factors underlying the growing evolution of this relationship, we find that, although the propensity to import of oil revenues has a significant negative influence on the pass-through of oil demand shocks on the current account, deepening of the domestic financial market and accumulation of foreign exchange reserve have a significant positive effect.

Suggested Citation

  • Blaise Gnimassoun & Marc Joets & Tovonony Razafindrabe, 2016. "On the link between current account and oil price fluctuation in diversified economies: The case of Canada," Economics Working Paper Archive (University of Rennes & University of Caen) 2016-08, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:2016-08
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    Keywords

    curent account; oil prices; time-varying parameters;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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