Aggregate Demand Shocks and Current Account Asymmetry: Some Empirical Evidence

The response of the current account to monetary and fiscal shocks and real oil price shocks are examined using quarterly data for the United Kingdom over the flexible exchange rate period. We find statistical support for the existence of long-run asymmetries in the current account response to monetary shocks. However, there is no support for the existence of such asymmetries in fiscal shocks. These findings are broadly consistent with the new Keynesian interpretation of economic performance.