The Current Account, a Real-Time Signal of Economic Imbalances or 20/20 Hindsight?

Abstract

The current account balance has a rich tradition as an indicator of macroeconomic imbalances – one considered essential in terms of presaging the recent financial crisis. However, we show that the current account balance may be misleading in real time. Preliminary estimates are subject to large revisions and are often of a sufficient magnitude to cross key international thresholds for signalling macroeconomic imbalances. We find some evidence that revisions in certain countries may be systematically biased and, hence, predictable. Exploring the Irish current account data in detail, we find that trade statistics dominate revisions.