1. ^aAfrican Department, International Monetary Fund, 700 Nineteenth Street, Washington DC, USA
2. ^bWestern Hemisphere Department, International Monetary Fund, 700 Nineteenth Street, Washington DC, USA

Abstract

The paper investigates cyclical fluctuations in the current and financial accounts of the balance of payments and major underlying components for nine industrial countries. Explanatory variables are domestic output growth, price inflation, real exchange rate fluctuations, energy price inflation, global growth, and regional growth. The evidence indicates the importance of fluctuations in output growth to the cyclicality of the current and financial balances. High domestic growth tends to stimulate financial inflows and provides adequate resources to finance a large current account deficit. Other factors appear to be less important to the cyclicality of the current and financial balances and their negative correlations.