The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union

Aleksander Aristovnik

No wp827, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan Stephen M. Ross Business School

Abstract: The article investigates the main factors of current account deficits in order to assess the potential excessiveness of current account deficits in selected countries of Eastern Europe and former Soviet Union. According to the simulated benchmark calculated on the basis of selected determinants (in period 1992-2003), the results confirm that the actual current account balances are generally close to their estimated levels in the 2000-2003 period in the transition region. This notion is in line with the intertemporal approach to the current account balance, suggesting that higher external deficits are a natural outcome when permanent domestic output exceeds the current one and when current investments and government consumption exceed their permanent levels. Hence, the results suggest that most countries in Eastern Europe and former Soviet Union are justified in running relatively high current account deficits.

Keywords: transition countries; current account deficits; excessiveness; determinants; dynamic panel data (search for similar items in EconPapers)
JEL-codes: C33 F32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
Date: 2006-06-01
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Working Paper: The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:wdi:papers:2006-827

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