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Sustainability of Persistent Current Account Deficits

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Author Info
Gian Maria Milesi-Ferrett
Assaf Razin

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Abstract

This paper puts forward a notion of current account sustainability that explicitly takes into account willingness to pay and willingness to lend in addition to intertemporal solvency. It argues that this notion of sustainability provides a better framework for understanding the variety of country experiences with protracted current account imbalances. Based on this notion, we identify a number of operational indicators related to the structure of the economy, the economic policy stance, and political economy factors. We use these sustainability indicators to evaluate the experience of a number of countries that ran persistent current account imbalances, and derive policy implications consistent with our notion of sustainability.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5467.

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Date of creation: Dec 1996
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Handle: RePEc:nbr:nberwo:5467

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Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

References listed on IDEAS
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  1. David T. Coe & Elhanan Helpman & Alexander W. Hoffmaister, 1994. "North-South R&D Spillovers," IMF Working Papers 94/144, International Monetary Fund.
    Other versions:
  2. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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.
  4. Home, Jocelyn, 1991. "Criteria of external sustainability," European Economic Review, Elsevier, vol. 35(8), pages 1559-1574, December. [Downloadable!] (restricted)
  5. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  7. David T. Coe & Elhanan Helpman, 1993. "International R&D Spillovers," IMF Working Papers 93/84, International Monetary Fund.
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  8. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
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(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. Rubaszek, Michał, 2008. "Economic convergence and the fundamental equilibrium exchange rate in Poland," MPRA Paper 12910, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, vol. 14(2), pages 169-190, April. [Downloadable!] (restricted)
  3. Rubaszek, Michal, 2005. "Fundamental equilibrium exchange rate for the Polish zloty," MPRA Paper 126, University Library of Munich, Germany. [Downloadable!]
  4. Diego Valderrama, 2002. "The impact of financial frictions on a small open economy: when current account borrowing hits a limit," Working Papers in Applied Economic Theory 2002-15, Federal Reserve Bank of San Francisco. [Downloadable!]
  5. Dimitris K. Christopoulos & Miguel León-Ledesma, 2004. "Current Account Sustainability in the US: What Do We Really Know About It?," Studies in Economics 0412, Department of Economics, University of Kent. [Downloadable!]
  6. Dumitru, Ionut & Dumitru, Ionela, 2009. "An Assessment of the Current Account Sustainability in Romania – An Inter-temporal Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 23-41, June. [Downloadable!]
  7. Aleksander Aristovnik, 2006. "How Excessive Are External Imbalances In Selected Transition Countries?," Prague Economic Papers, University of Economics, Prague, vol. 2006(3), pages 243-267. [Downloadable!] (restricted)
  8. Aleksander Aristovnik, 2005. "Twin Deficits Hypothesis And Horioka-Feldstein Puzzle In Transition Economies," International Finance 0510020, EconWPA. [Downloadable!]
  9. Ayla Ogus & Niloufer Sohrabji, 2008. "Intertemporal solvency of Turkey’s current account," Working Papers 0805, Izmir University of Economics. [Downloadable!]
  10. Sebastian Edwards, 1999. "Crisis Prevention: Lessons from Mexico and East Asia," NBER Working Papers 7233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Ziesemer,Thomas, 2005. "Unstable Debt/GDP Dynamics as an Early Warning Indicator," Research Memoranda 016, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  12. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part II: The Policy Debate," NBER Working Papers 6834, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Francois Gurtner, 2002. "Currency Board and Debt Trap: Evidence from Argentina and Relevance for Estonia," CERT Discussion Papers 0204, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
  14. Kannan, R & Singh, Bhupal, 2007. "Debt-deficit dynamics in India and macroeconomic effects: A structural approach," MPRA Paper 16480, University Library of Munich, Germany, revised 2007. [Downloadable!]
  15. Iris Claus & David Haugh & Grant Scobie & Jonas Tornquist, 2001. "Saving and growth in an open economy," Treasury Working Paper Series 01/32, New Zealand Treasury. [Downloadable!]
  16. Ayla Ogus & Niloufer Sohrabji, 2008. "Analyzing the Present Sustainability of Turkey’s Current Account Position," Working Papers 0803, Izmir University of Economics. [Downloadable!]
  17. Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  18. Helmut Reisen, 1998. "Sustainable and Excessive Current Account Deficits," Empirica, Springer, vol. 25(2), pages 111-131, January. [Downloadable!] (restricted)
    Other versions:
  19. Sebastian Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," NBER Working Papers 12904, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Francisco Nadal De Simone, 1997. "Current account and exchange rate behaviour under inflation targeting in a small open economy," Reserve Bank of New Zealand Discussion Paper Series G97/4, Reserve Bank of New Zealand. [Downloadable!]
  21. Sebastian Edwards, 2002. "Debt Relief and Fiscal Sustainability," NBER Working Papers 8939, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union: Equilibrium, Excess, and EU-Phoria," IMF Working Papers 08/92, International Monetary Fund. [Downloadable!]
  23. Herwartz, Helmut & Xu, Fang, 2006. "Reviewing the sustainability/stationarity of current account imbalances with tests for bounded integration," Economics Working Papers 2006,07, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  24. Ayla Ogus & Niloufer Sohrabji, 2008. "On the optimality and sustainability of Turkey’s current account," Empirical Economics, Springer, vol. 35(3), pages 543-568, November. [Downloadable!] (restricted)
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