Current account adjustment in industrialized countries

Caroline Freund ()

No 692, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines the dynamics of current account adjustment among industrialized countries. We identify twenty-five episodes in which a large sustained improvement in the current account occurred between 1980 and 1997. We find that a typical current account reversal begins when the current account deficit is about 5 percent of GDP, that it is associated with slowing income growth and a 10-20 percent real exchange rate depreciation. Real export growth, declining investment, and an eventual leveling off in both the net international investment position and the budget deficit-GDP ratio are also likely to be part of the adjustment. These results suggest that current account reversals in industrialized countries are largely a function of the business cycle.

Keywords: Balance of payments; Business cycles (search for similar items in EconPapers)
Date: 2000
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:692

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