Household Savings, Capital Investments and Public Policies : What Drives the German Current Account?

In this article, we present a model that can account for the changes in the German current account balance since the 2000s. Our results suggest that an array of structural tax and labor market reforms (Agenda 2010), population aging and pension reforms led to an increase in the household savings rate in Germany until about 2010. As domestic investment opportunities could not absorb these additional savings, they were partly invested abroad. The German current account-to-GDP ratio rose. After 2010, private savings remained rather stable, but opportunities to invest in Germany declined further. Our simulations suggest that a tight fiscal stance in Germany (combined with an expansionary stance in the rest of the world), under-investment in the corporate sector and productivity gains in emerging economies after 2010 significantly contributed to this