How Do Oil Price Changes Affect the Current Account Balance? Evidence from Co-integration and Causality Tests

Abstract

This paper examines the relationship between the global oil prices and current account balances in Czechia, Hungary, and Poland by using ARDL and causality analysis. Our estimates indicate that there is a co-integrating relationship among the global oil price, current account balance, GDP growth rate, and real exchange rate in the sample countries. We find that a change in oil price has a significant effect on the current account balance in Poland and Czechia. Additionally, our results suggest that a change in the growth rate exerts a significant effect on the current account in these two countries. Moreover, there is a causal relationship running from the oil prices to current account balances in all sample countries in the short run. Furthermore, it seems that the growth rates Granger cause the current account in Czechia and Hungary in the short run. Finally, we also detect a long run and strong causality between variables in some cases.