current account

A financial perspective on the UK current account deficit

A drop in net FDI investment income has been the primary factor in the recent deterioration in the measured UK current account balance, with the trade balance relatively stable. We argue that financial engineering (with little net impact on the underlying international investment position for the UK) may have contributed to the decline in net FDI investment income, such that the headline current account balance cannot be interpreted as a sufficient indicator of the state of the UK’s external position.

The impact of global imbalances: Does the current account balance help to predict banking crises in OECD countries?

Given the magnitude of 'global imbalances' in the run-up to the subprime crisis, we test for an impact of the current account balance on the probability of banking crises in OECD countries since 1980. This variable has been neglected in most early warning models to date, despite its prominence in theory and in case studies of crises.