Current Account Deficits, Macroeconomic Policy Stance and Governance: An Empirical Investigation

Erdal Ozmen ()

No 414, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This paper empirically investigates the effects of institutional and macroeconomic policy stance variables on current account deficits (CAD). Based on cross-section data for a broad number of developing and industrial countries, the results strongly suggest that better governance increases whilst the presence of original sin decreases the ability of an economy to sustain CAD. Exchange rate flexibility and openness appear to put a discipline on CAD. Consistent with the equity home bias and Feldstein-Horioka puzzle, CAD decrease with country size. The net impacts of the financial deepening and monetary credibility on CAD are found to be insignificant.

Keywords: Current Account; Exchange Rate Regimes; Original Sin (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2004-10, Revised 2004-10
New Economics Papers: this item is included in nep-ifn and nep-mac
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http://erc.metu.edu.tr/en/system/files/menu/series04/0414.pdf First version, 2004 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:0414

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