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Persistent Current Account Deficits: A Warning Signal?

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  • Milesi-Ferretti, Gian Maria
  • Razin, Assaf

Abstract

When should persistent current account deficits be of concern to policymakers? We address this question by developing a framework for analysing current account sustainability, that explicitly takes into account willingness to pay and willingness to lend in addition to intertemporal solvency. This framework helps understand a variety of country experiences with protracted current account imbalances. We identify a number of sustainability indicators related to the structure of the economy, the economic policy stance, and political economy factors, and use them to evaluate the experience of countries that suffered external crises and of others that avoided them. Copyright @ 1996 by John Wiley & Sons, Ltd. All rights reserved.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 1 (1996)
Issue (Month): 3 (July)
Pages: 161-81

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Handle: RePEc:ijf:ijfiec:v:1:y:1996:i:3:p:161-81

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Cited by:
  1. Bussière, Matthieu, 2007. "Balance of payment crises in emerging markets: how early were the “early” warning signals?," Working Paper Series 0713, European Central Bank.
  2. Takatoshi Ito, 2000. "Capital Flows in Asia," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 255-296 National Bureau of Economic Research, Inc.
  3. Bird, Graham & Hussain, Mumtaz & Joyce, Joseph P., 2004. "Many happy returns? Recidivism and the IMF," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 231-251, March.
  4. Kim, Kunhong & Hall, Viv B. & Buckle, Robert A., 2006. "Consumption-smoothing in a small, cyclically volatile open economy: Evidence from New Zealand," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1277-1295, December.
  5. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
  6. Kunhong Kim & Viv B Hall & Robert A Buckle, 2001. "New Zealand's Current Account Deficit: Analysis based on the Intertemporal Optimisation Approach," Treasury Working Paper Series 01/02, New Zealand Treasury.
  7. Julius Horvath, 1999. "The May 1997 Currency Crisis in the Czech Republic," Post-Communist Economies, Taylor & Francis Journals, vol. 11(3), pages 277-298.
  8. Horvath, Julius & Jonas, Jiri, 1998. "Exchange rate regimes in the transition economies: Case study of the Czech Republic: 1990-1997," ZEI Working Papers B 11-1998, ZEI - Center for European Integration Studies, University of Bonn.

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