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Sustainable and Excessive Current Account Deficits

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  • Helmut Reisen

Abstract

Large current account deficits are often assumed to play an important role in the propagation of financial crises in emerging markets in receipt of heavy private capital inflows. This paper reaches some major conclusions. First , the Lawson Doctrine — according to which current account deficits that result from a shift in private-sector behaviour should not be a public policy concern — has been discredited by recent currency crises in Latin America and Asia. Second , it is possible to define the size of current account deficits that should be sustainable in the long run. Third , the intertemporal approach to the current account does not provide a reliable benchmark to define when deficits become “excessive”. Fourth , large external deficits should be resisted if unsustainable currency appreciation, excessive risk-taking in the banking system and a sharp drop in private savings are seen to coincide ... Les déficits de la balance des opérations courantes sont-ils largement responsables de la propagation des crises financières dans les marchés émergents qui reçoivent des flux importants de capitaux privés ? Ce document présente plusieurs résultats de recherche relatifs à ce problème. Premièrement , la doctrine de Lawson — selon laquelle les politiques publiques ne devraient pas se soucier des déficits des comptes courants liés aux comportements incohérents du secteur privé — a été discréditée par les crises monétaires qui ont récemment frappé l’Asie et l’Amérique latine. Deuxièmement , il est possible de préciser quel niveau de déficit des comptes courants est tenable à long terme. Troisièmement , on ne peut se fier à une approche intertemporelle pour définir le seuil à partir duquel les déficits deviennent « excessifs ». Quatrièmement, il faut éviter les déficits extérieurs importants lorsque la monnaie est surévaluée, que le secteur bancaire prend trop de risques et que l’on observe ...

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 132.

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Date of creation: Feb 1998
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Handle: RePEc:oec:devaaa:132-en

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  13. Helmut Reisen, 1996. "Net capital inflows: how much to accept, how much to resist?," Proceedings, Federal Reserve Bank of San Francisco, pages 289-321.
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Citations

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Cited by:
  1. Andre Cartapanis, 2004. "Le declenchement des crises de change : qu'avons-nous appris depuis dix ans ?," Economie Internationale, CEPII research center, issue 97, pages 5-48.
  2. Aristovnik, Aleksander, 2006. "The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union," MPRA Paper 483, University Library of Munich, Germany.
  3. E Lau & S Abu Mansor & C-H Puah, 2010. "Revival of the Twin Deficits in Asian Crisis-affected Countries," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 29-54, March.
  4. Karl Whelan, 2013. "Sovereign default and the euro," Oxford Review of Economic Policy, Oxford University Press, vol. 29(3), pages 478-501, AUTUMN.
  5. Aleksander Aristovnik, 2007. "Short- And Medium-Term Determinants Of Current Account Balances In Middle East And North Africa Countries," William Davidson Institute Working Papers Series wp862, William Davidson Institute at the University of Michigan.
  6. Deren Unalmis & Ibrahim Unalmis & Derya Filiz Unsal, 2008. "Oil Price Shocks, Macroeconomic Stability and Welfare in a Small Open Economy," Working Papers 0802, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  7. Jha, Raghbendra, 2001. "Macroeconomics of Fiscal Policy in Developing Countries," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Aristovnik, Aleksander, 2006. "How sustainable are current account deficits in selected transition economies?," MPRA Paper 485, University Library of Munich, Germany.
  9. 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.
  10. Baharumshah, Ahmad Zubaidi & Lau, Evan & Fountas, Stilianos, 2003. "On the sustainability of current account deficits: evidence from four ASEAN countries," Journal of Asian Economics, Elsevier, vol. 14(3), pages 465-487, June.
  11. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
  12. Ahmad Zubaidi Baharumshah & Evan Lau & Ahmed M. Khalid, 2005. "Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition," International Finance 0504001, EconWPA.
  13. Aleksander Aristovnik, 2006. "Current Account Sustainability In Selected Transition Countries," William Davidson Institute Working Papers Series wp844, William Davidson Institute at the University of Michigan.
  14. Neményi, Judit & Oblath, Gábor, 2012. "Az euró bevezetésének újragondolása
    [Rethinking Hungary s prospective adoption of the Euro]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 569-684.
  15. Cartapanis, Andre & Dropsy, Vincent & Mametz, Sophie, 2002. "The Asian Currency Crises: Vulnerability, Contagion, or Unsustainability," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 79-91, February.
  16. Helmut Reisen, 1998. "Domestic Causes of Currency Crises: Policy Lessons for Crisis Avoidance," OECD Development Centre Working Papers 136, OECD Publishing.
  17. Hamizun Ismail & Ahmad Baharumshah, 2008. "Malaysia’s current account deficits: an intertemporal optimization perspective," Empirical Economics, Springer, vol. 35(3), pages 569-590, November.

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