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Current-Account Reversals in Developing Countries: The Role of Fundamentals

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Author Info
Alberto Bagnai ()
Stefano Manzocchi ()

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Abstract

This paper studies episodes of current-account reversal in developing countries (DCs) in the period 1965–1994. First, a number of persistent shifts (“reversalsâ€) in the current-account balance dynamics are identified by structural break and segmented trend tests; then, the relationship between these reversals and a set of fundamentals suggested by the intertemporal approach to the current account is investigated in a panel-data set-up. We find that fundamentals play a different role in episodes of persistent deterioration or improvement of the current-account balance in DCs. Copyright Kluwer Academic Publishers 1999

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File URL: http://hdl.handle.net/10.1023/A:1008365318228
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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 10 (1999)
Issue (Month): 2 (May)
Pages: 143-163
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Handle: RePEc:kap:openec:v:10:y:1999:i:2:p:143-163

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Related research
Keywords: current account dynamics; developing countries; unit roots; structural breaks; panel data;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  2. Manzocchi, Stefano & Martin, Philippe, 1996. "Are Capital Flows Consistent with the Neoclassical Growth Model? Evidence from a Cross-section of Developing Countries," CEPR Discussion Papers 1400, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  4. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, Oxford University Press, vol. 9(2), pages 305-33, May.
  5. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation, Yale University. [Downloadable!]
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  6. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
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  7. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-27, May. [Downloadable!] (restricted)
  8. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November. [Downloadable!] (restricted)
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  9. Gundlach, Erich & Sinn, Stefan, 1992. "Unit Root Tests of the Current Account Balance: Implications for International Capital Mobility," Applied Economics, Taylor and Francis Journals, vol. 24(6), pages 617-25, June.
  10. A. R. Pagan & A. D. Hall, 1983. "Diagnostic tests as residual analysis," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 159-218. [Downloadable!] (restricted)
  11. Jyh-lin, Wu & Fountas, Stilianos & Show-lin, Chen, 1996. "Testing for the sustainability of the current account deficit in two industrial countries," Economics Letters, Elsevier, vol. 52(2), pages 193-198, August. [Downloadable!] (restricted)
  12. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May. [Downloadable!] (restricted)
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  13. Graham Elliott & Antonio Fatas, 1996. "International Business Cycles and the Dynamics of the Current Account," University of California at San Diego, Economics Working Paper Series 96-07, Department of Economics, UC San Diego.
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  14. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  15. Corbo, Vittorio & Hernandez, Leonardo, 1996. "Macroeconomic Adjustment to Capital Inflows: Lessons from Recent Latin American and East Asian Experience," World Bank Research Observer, Oxford University Press, vol. 11(1), pages 61-85, February.
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  17. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-87, July.
  18. Matthew Higgins & Jeffrey G. Williamson, 1996. "Asian Demography and Foreign Capital Dependence," NBER Working Papers 5560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Gian Maria Milesi-Ferretti & Assaf Razin, 1997. "Sharp Reductions in Current Account Deficits: An Empirical Analysis," IMF Working Papers 97/168, International Monetary Fund.
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  20. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February. [Downloadable!] (restricted)
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  21. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  22. Chu, Chia-Shang James & White, Halbert, 1992. "A Direct Test for Changing Trend," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 289-99, July.
  23. Hamid Faruqee & Guy Debelle, 1996. "What Determines the Current Account? A Cross-Sectional and Panel Approach," IMF Working Papers 96/58, International Monetary Fund.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fernando Pérez de Gracia & Juncal Cuñado, . "Intertemporal Current Account and Productivity Shocks: Evidence for Some European Countries," Working Papers on International Economics and Finance 01-05, FEDEA. [Downloadable!]
  2. Michael Hutchison & Ilan Noy, 2004. "Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets," Santa Cruz Center for International Economics, Working Paper Series 1035, Center for International Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  3. Bernardina Algieri & Thierry Bracke, 2007. "Patterns of current account adjustment - insights from past experience," Working Paper Series 762, European Central Bank. [Downloadable!]
  4. Bernardina Algieri & Thierry Bracke, 2007. "Patterns of Current Account Adjustment – Insights from Past Experience," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Aßmann, Christian, 2007. "Determinants and Costs of Current Account Reversals under Heterogeneity and Serial Correlation," Economics Working Papers 2007,17, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
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