External Cyclicality in the Face of Aggregate Demand Shocks: Pros and Cons Across Developed and Developing Countries

摘要

The paper studies variation in the effects of aggregate demand shocks onthe external sector and underlying components and distinguishes betweenthe effects of expansionary and contractionary shocks. The aim is to studythe determinants and implications of cyclicality across advanced anddeveloping countries. The composite evidence points to high degree ofcyclicality in many countries. Based on time-series correlations, there is a stronger cyclical co-movement between the trade and current accountbalances across advanced countries, compared to developing countries.Further, fluctuations in the financial balance are dependent on developments in exports in many developing countries. The determinants ofexternal vulnerability vary with macroeconomic indicators. The evidencepoints to higher vulnerability of the external balance with respect tohigher trend inflation across developing countries. In addition,constraints on capacity in developing countries could risk externalstability as trend growth increases across countries. Governmentspending is an important determinant of external stability in developingcountries, reflecting the adverse implications of higher governmentspending and a widening fiscal deficit on debt sustainability and externalfinancial flows. Further, private consumption is a key driver of aggregateuncertainty and cyclical fluctuations in the external balances acrossdeveloping countries.