Current account adjustment and capital flows

Gabriele Galati and Guy Debelle ()

No 169, BIS Working Papers from Bank for International Settlements

Abstract: This paper examines episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizeable slowdown in domestic growth and a large exchange rate depreciation. There was no discernable change in the nature of capital flows in the period just prior to an adjustment, with the possible exception of non-residents' holdings of currency and deposits. This suggests that a current account adjustment may be an endogenous event - responding to the resolution of domestic imbalances - rather than an exogenous event where the size of the current account deficit itself precipitates the adjustment in the domestic economy and the exchange rate. Econometric evidence suggests that global developments trigger the adjustment, possibly because they trigger the unwinding of the domestic imbalances. We find that the bulk of the ex post adjustment of the financial account was in private sector flows, primarily on the part of foreign investors. Finally, we document some notable differences in the adjustment of the current account in the United States in 1987 compared with that observed in the other episodes.

Keywords: International Finance; Current Account Adjustment; Open Economy Macroeconomics (search for similar items in EconPapers)
JEL-codes: F3 F32 F41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://www.bis.org/publ/work169.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work169.htm (text/html)

Related works:
Journal Article: Current Account Adjustment and Capital Flows* (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:169

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().