International Economics

<< N°158

Issue Q2 2019  
The importance of the financial system for the current account in Sweden: A sectoral approach  
Erik Spånberg
Hovick Shahnazarian
This paper takes a sectoral approach to investigate the importance of financial variables for current account dynamics in Sweden. We use a Bayesian VAR modelwith priors on the steady states to analyse the determinants of net lending in different sectors and by extension the current account. The results suggest that: (i) the sectoral approach provides added value in analysing and understanding the drivers of the current account; (ii) demographic and financial shocks each account for 10–40 per cent of the forecast error variance of net lending in different sectors; (iii) negative development in the financial variables has a negative impact on the current account; and (iv) the importance and impact magnitudes of financial shocks depend on how economic policies are assumed to counteract these shocks. Abstract

Current account ; Net lending ; Financial variables ; Bayesian VAR ; Keywords
E20 ; E44 ; F32 ; JEL classification
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