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Patterns of current account adjustment: insights from past experience

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  • Algieri, Bernardina
  • Bracke, Thierry
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    Abstract

    The paper examines over seventy episodes of current account adjustment in industrial and major emerging market economies. It argues that these episodes were characterised by strongly divergent economic developments. To reduce this divergence, the paper classifies episodes with similar characteristics in three groups, using cluster analysis. A majority of cases was characterised by internal adjustment through a slowdown of domestic demand and did not involve significant exchange rate movements. In some cases, the adjustment was mainly external, facilitated by a relatively modest exchange rate depreciation and without economic slowdown. Finally, some cases involved a crisis-like combination of a severe slowdown and a significant currency depreciation. Using a multinomial logit, we find that this classification of episodes helps improve the predictability of current account adjustment. JEL Classification: F32, C14, C25

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0762.

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    Date of creation: Jun 2007
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    Handle: RePEc:ecb:ecbwps:20070762

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    Related research

    Keywords: cluster analysis; current account adjustment; external imbalances; multinomial logit;

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    Cited by:
    1. Maria Bas & Ivan Ledezma, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," CESifo Working Paper Series 2077, CESifo Group Munich.
    2. Lucas Papademos, 2007. "The Effects of Globalization on Inflation, Liquidity and Monetary Policy," NBER Chapters, in: International Dimensions of Monetary Policy, pages 593-608 National Bureau of Economic Research, Inc.
    3. Theofilakou, Nancy & Stournaras, Yannis, 2012. "Current account adjustments in OECD countries revisited: The role of the fiscal stance," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 719-734.

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