Investigating The Determinants of Current Account Balances

Current account conveys the information regarding the actions and expectations of all market participants in open economy. This book applies the approach of Generalized Method of Moments to investigate the determinants of current account balances. The objectives of this research are to investigate the determinants of current account dynamics and to compare the determinants of current account between two groups of countries, i.e. countries with current account surpluses and countries with current account deficits. Research sample consists of ten countries has been used. These countries are Australia, Cyprus, Italy, Portugal, United States, Germany, Japan, Singapore, Norway and Switzerland. The result of the study indicates that terms of trade and trade openness are statistically significant in influencing current account surpluses. Besides, the world oil price and reserve accumulation give mixed impacts to the current account deficits. Meanwhile, nominal effective exchange rate, interest rate and CPI are less statistically significant in influencing current account deficits. Productivity has the positive impact to the current account surplus. There are some determinants that have i