Oil price shocks and the composition of current account balance

Özet

It is a well-established regularity that permanent oil price shocks do not have a permanent effect on thecurrent account deficit. This requires that sub-components of the current account or trade balance willmake the necessary adjustments to accommodate the higher energy bill of a country triggered by permanentcrude oil price increases. Empirical evidence gathered from Turkey reveals that, in the long run,balancing the current account is provided by a permanent increase in the net exports of AgriculturalProduction, Maintenance and Repair Services, Travel, Construction, Financial Services, Compensation ofEmployees, and Goods under Merchanting (non-tradable components of the current account balance);and a permanent decrease in the net exports of Mining, Fishery, Other Goods for BEC Classification,Investment Income, Manufacturing Services on Physical Inputs Owned by Others, and Transport balancesmostly in sectors that use energy heavily in production. All these responses are found to be statisticallysignificant in the more than 24 periods we consider in this study.