Sharp Reductions in Current Account Deficits: An Empirical Analysis

December 1, 1997

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Gian M Milesi-Ferretti, and Assaf Razin. Sharp Reductions in Current Account Deficits: An Empirical Analysis, (USA: International Monetary Fund, 1997) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper studies determinants and consequences of sharp reductions in current account imbalances (reversals) in low- and middle-income countries. It poses two questions: what triggers reversals, and what factors explain how costly reversals are? It finds that both domestic variables, such as the current account balance, openness to trade, and the level of reserves, and external variables, such as terms of trade shocks, U.S. real interest rates, and growth in industrial countries, seem to play important roles in explaining reversals in current account imbalances. It also finds some evidence that countries with a less appreciated real exchange rate, higher investment, and more openness before the reversal tend to grow faster after a reversal occurs.

Subject: Balance of payments, Current account, Current account deficits, Current account imbalances, External debt, International trade, Terms of trade

Keywords: Balance-of-payments crisis, Capital flows, Current account, Current account deficit, Current account deficits, Current account imbalances, Current account reversal, Current account sustainability, Deficit, GDP, GDP ratio, Global, Investment share, Persistent current account imbalance, Rate of growth, Terms of trade, Terms of trade shock, WP

Publication Details

Pages:

17
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/168
Stock No:

WPIEA1681997
ISBN:

9781451858228
ISSN:

1018-5941

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