Current Account Sustainability in Global Economies

The current account records a nation’s transactions in goods, services, income and transfers with the rest of the world. Its sustainability reflects whether external imbalances can be maintained without leading to destabilising debt accumulation or abrupt adjustment. Recent work has emphasised the interplay between macro-economic fundamentals—such as the terms of trade, real exchange rate movements, fiscal deficits and demographic shifts—and financial factors, including foreign direct investment, portfolio flows and reserve accumulation. In advanced economies, persistent surpluses have financed emerging-market deficits, while in many developing regions long-running deficits have been underwritten by volatile capital flows. Empirical approaches range from intertemporal optimisation models to cointegration and non-linear time-series techniques, enabling assessment of long-run equilibrium relationships and the detection of structural breaks. Policy interest centres on the capacity of governments and central banks to pre-empt unsustainable paths through exchange-rate flexibility, adjustments in trade composition and macro-prudential measures. An integrated perspective reveals that sustainability is not only a national concern but also a global public good, since large external imbalances can propagate shocks across regions and amplify financial volatility.

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Current Account Sustainability in Global Economies publication trend

The graph below shows the total number of articles in current account sustainability in global economies across all publications each year (not limited to Nature Index journals).

Technical terms

Current account: The balance of a country’s exports and imports of goods and services, net income from abroad and net current transfers.

Sustainability: The condition in which external deficits or surpluses remain within limits that do not provoke accelerating external debt or abrupt corrective adjustments.

Structural break: A point at which the statistical properties of a time series, such as mean or variance, change significantly.

Stability spell: An interval between structural breaks during which a current account remains close to its long-run equilibrium.

Terms of trade: The ratio of export prices to import prices, reflecting a country’s purchasing power for foreign goods.

Real exchange rate: The price of domestic goods relative to foreign goods, adjusted for differences in price levels.

Unit root test: A statistical procedure used to determine whether a time series is stationary or contains a unit root, indicating persistence of shocks.

References

1. Current-account breaks and stability spells in a global perspective. Applied Economic Analysis (2021).
2. The Roles of the Terms of Trade and the Real Exchange Rate in the Current Account Balance. Economics: The Open-Access, Open-Assessment E-Journal (2024).
3. Sustainability Analysis of Current Account In the European Union Countries: FADF and FKSS Unit Root Tests. Uluslararası Ekonomi ve Yenilik Dergisi (2021).
4. Current account sustainability: A non-linear comparative empirical overview. Panoeconomicus (2018).
5. The Intertemporal Approach to the Current Account: Evidence for Argentina. Journal of Applied Economics (2008).