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Current Account Developments in New Member States of the European Union: Equilibrium, Excess, and EU-Phoria

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Author Info
Jesmin Rahman
Abstract

This paper analyzes current account (CA) developments in the following 10 new EU members states: Czech Republic, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. During the last 15 years, these countries, on average, have run CA deficits that are considerably higher than the average CA deficit of other developing countries. However, more recently, a diverging pattern has emerged among these countries with one group, consisting of the Baltic countries, Bulgaria and Romania, experiencing rapid widening, while the others seeing a stabilization in their CA balances. Using panel data for 59 countries, this paper empirically investigates the following three questions: Are higher average deficits in EU-10 explained by medium-term macroeconomic fundamentals? What explains the diverging CA behavior among EU-10? And finally, how challenging is it for the group experiencing rapidly widening CA deficits to reverse the trend?

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/92.

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Length: 34 pages
Date of creation: 17 Apr 2008
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Handle: RePEc:imf:imfwpa:08/92

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  4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  5. Francesco Caselli & Silvana Tenreyro, 2005. "Is Poland the Next Spain?," NBER Working Papers 11045, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Joshua Aizenman & Yi Sun, 2008. "Globalization and the Sustainability of Large Current Account Imbalances: Size Matters," NBER Working Papers 13734, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Ashoka Mody & Abdul Abiad & Daniel Leigh, 2007. "International Finance and Income Convergence: Europe is Different," IMF Working Papers 07/64, International Monetary Fund. [Downloadable!]
  8. Hamid Faruqee & Martin Fetherston & Peter Isard & G. Russell Kincaid, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
  9. Rudolfs Bems & Philip Schellekens, 2007. "Finance and Convergence: What's Ahead for Emerging Europe?," IMF Working Papers 07/244, International Monetary Fund. [Downloadable!]
  10. Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Robin Brooks & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
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