Current Account Reversals and Currency Crises: Empirical Regularities

IMF Working Papers, June 1, 1998

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Current Account Reversals and Currency Crises: Empirical Regularities

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Bibliographic details

• Authors: Gian M Milesi-Ferretti, Assaf Razin
• Published: June 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451952421.001

Overview

• Authors: Gian M Milesi-Ferretti, Assaf Razin
• Publication date: June 1, 1998
• Type: IMF Working Paper (Working Paper No. 1998/089)
• Scope: Studies large reductions in current account deficits and exchange rate depreciations in low- and middle-income countries, examining predictors of reversals and currency crises and their effects on macroeconomic performance.

Key findings

• Both domestic and external factors are found to trigger reversals and currency crises.
  • Domestic factor explicitly identified: low reserves.
  • External factor explicitly identified: unfavorable terms of trade.
• The two types of events are distinct in their macroeconomic outcomes:
  • An exchange rate crash is associated with a fall in output growth and a recovery thereafter.
  • For current account reversals there is no systematic evidence of a growth slowdown.

Predictive factors examined

• Domestic factors:
  • Low reserves
• External factors:
  • Unfavorable terms of trade

Macroeconomic effects and dynamics

• Exchange rate crash:
  • Associated sequence: fall in output growth followed by a recovery.
• Current account reversal:
  • No systematic evidence of a growth slowdown associated with the reversal.

Content in this bundle

• Current Account Reversal and Currency Crises: Empirical Regularities - WP/98/89
  • Current Account Reversal and Currency Crises: Empirical Regularities - WP/98/89 (Markdown version)
  • Current Account Reversal and Currency Crises: Empirical Regularities - WP/98/89 (PDF)