Current Account Sustainability in Transition Economies
AbstractThis paper presents an analysis of the sustainability of current account deficits in transition economies in Central and Eastern Europe. These countries have experienced large current account imbalances in the transition to a market economy. We consider a wide range of macroeconomic factors that may indicate whether such imbalances are sustainable. We find that capital inflows and the choice of regimes of fixed exchange rates have led to a real exchange rate appreciation in many countries; this in turn has led to a significant loss of competitiveness and a worsening of the current account. In several countries there are a number of other indicators that point to a fragility of the external balance: weak banking and financial systems, large fiscal imbalances, low foreign reserves, increasing foreign debt and foreign debt-burden ratios. However, short-term portfolio investments (so-called hot money' inflows) are still relatively small in the transition economies examined, thus limiting the possibility of sudden speculative capital outflows.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6468.
Date of creation: Mar 1998
Date of revision:
Publication status: published as Skreb, M. and M. Blejer (eds.) Balance of Payments, Exchange Rates and Competitiveness in Transition Economies. 1999.
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Other versions of this item:
- Nouriel Roubini & Paul Wachtel, 1997. "Current Account Sustainability in Transition Economies," Working Papers 97-03, New York University, Leonard N. Stern School of Business, Department of Economics.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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