Sharp Reductions in Current Account Deficits: An Empirical Analyis

23 Pages Posted: 11 Jul 2000 Last revised: 30 Sep 2022

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

National Bureau of Economic Research (NBER); Senior Fellow; Centre for Economic Policy Research (CEPR)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: December 1997

Abstract

We study determinants and consequences of sharp reductions in current account" imbalances (reversals) in low- and middle-income countries. We try to answer two questions:" first, what triggers reversals? Second, what factors explain how costly reversals are? We find" that both domestic variables, such as the current account balance, openness and the level of" reserves, and external variables, such as terms of trade shocks, US real interest rates and growth" in industrial countries seem to play an important role in explaining reversals in current account" imbalances. We also find some evidence that countries with a less appreciated real exchange" rate, higher investment and openness prior to the reversal tend to grow faster after a reversal" occurs.

Suggested Citation

Milesi-Ferretti, Gian Maria and Milesi-Ferretti, Gian Maria and Razin, Assaf, Sharp Reductions in Current Account Deficits: An Empirical Analyis (December 1997). NBER Working Paper No. w6310, Available at SSRN: https://ssrn.com/abstract=226065

Gian Maria Milesi-Ferretti (Contact Author)

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

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Israel
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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

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United Kingdom

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