What drives the current account in commodity exporting countries?: the cases of Chile and New Zealand
As capital markets have become increasingly integrated, savings and investment within countries have tended to become less correlated, in what is known as the Feldstein-Horioka (1980) correlation, with the corollary that savings-investment gaps (that is, current accounts) have tended to become more variable. Many countries have also registered a trend toward larger gross external asset and liability positions relative to gross domestic product (GDP), even when net positions have changed little (Lane and Milesi-Ferretti, 2003). The increase in both external stocks and external flows relative to income allows a more efficient matching of borrowers and savers, but it also creates risks for both macroeconomic stability and financial stability associated with swings in sentiment in financial markets. An assesment of the main domestic and external factors that drive variations in the external accounts helps in understanding the macroeconomic implications that might stem from adjustments.