No. 969 - Demography and the current account: a case-study of Italy
To assess a country's external imbalances, some international institutions, including the IMF, estimate current account 'norms', defined as the equilibrium value consistent with macroeconomic conditions. Among these, demographics are a highly relevant factor in several advanced economies. This paper analyses how the use of demographic projections from different sources and the inclusion of labour market variables in the models affect the estimation of the norm for Italy.
The estimate of the equilibrium current account balance varies significantly depending on the demographic projections used: compared with those of the United Nations, the less pessimistic projections sourced from Eurostat and Istat would lower the equilibrium value of the surplus for Italy. Including labour market variables in a standard model would further reduce the value. These results suggest that purely model-based measures of external imbalances should be interpreted with great caution.
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09 October 2025
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