Today versus Tomorrow - The Sensitivity of the Non-Oil Current Account Balance to Permanent and Current Income
IMF Working Papers, November 1, 2009
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Bibliographic details
- Authors: Alun H. Thomas, Tamim Bayoumi
- Published: November 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873955.001
Purpose and methodology
- Applies the Permanent Income Model to the non-oil current accounts of the major oil exporters.
- Assesses the extent to which national consumption decisions are based on permanent versus current income.
- Tests whether the return on oil wealth and oil balance coefficients sum to unity; test is accepted for all specifications that adjust the return on wealth for future population changes.
Key findings
- For oil-exporting countries outside Africa:
- "around half of the fluctuations in the private sector non-oil balance are driven by considerations of changes in permanent income (the return on oil wealth) rather than current income."
- For the public sector and African countries:
- Permanent income has little or no effect on the non-oil current account balance.
- The test of coefficient summation (return on oil wealth + oil balance = unity) is accepted when adjustments for future population changes are included.
Implications and interpretation
- Private sector consumption and non-oil balances in many major oil exporters respond substantially to changes in permanent income (oil wealth returns), implying forward-looking consumption behavior in those private sectors.
- Public sector balances and African oil exporters appear less influenced by permanent-income considerations, suggesting different fiscal/consumption dynamics or policy frameworks.