Current Account Reversals and Currency Crises: Empirical Regularities

Gian Maria Milesi-Ferretti () and Assaf Razin

No 1921, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds that both domestic factors, such as the low reserves, and external factors, such as unfavourable terms of trade and high interest rates in industrial countries, trigger reversals and currency crises. The two types of events are, however, distinct; indeed, current account imbalances are not sharply reduced in the years following a currency crisis. Economic performance around these events is also quite different. An exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversal events there is no systematic evidence of a growth slowdown.

Keywords: Currency Crisis; current account reversal; Growth; Openness; Real Exchange Rate (search for similar items in EconPapers)
JEL-codes: F31 F32 F33 F34 (search for similar items in EconPapers)
Date: 1998-07
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Citations: View citations in EconPapers (184)

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Related works:
Chapter: Current Account Reversals and Currency Crises: Empirical Regularities (2000)
Working Paper: Current Account Reversals and Currency Crises: Empirical Regularities (1998)
Working Paper: Current Account Reversals and Currency Crises: Empirical Regularities (1998)
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