Sharp Reductions in Current Account Deficits: An Empirical Analysis

Gian Maria Milesi-Ferretti () and Assaf Razin

No 1997/168, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; current account deficit; deficit; GDP; Current account deficits; current account sustainability; capital flows; persistent current account imbalance; current account reversal; investment share; GDP ratio; terms of trade shock; rate of growth; balance-of-payments crisis; Current account imbalances; Current account; Terms of trade; Global (search for similar items in EconPapers)
Pages: 17
Date: 1997-12-01
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Citations: View citations in EconPapers (36)

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Related works:
Journal Article: Sharp reductions in current account deficits An empirical analysis (1998)
Working Paper: Sharp Reductions in Current Account Deficits: An Empirical Analyis (1997)
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