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The Growth Effects of Current Account Reversals: The Role of Macroeconomic Policies

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  • Luiz de Mello
  • Pier Carlo Padoan
  • Linda Rousová

Abstract

This paper assesses empirically whether or not current account reversals have permanent growth effects and the role of macroeconomic policies in this process. The methodology developed in de Mello, Padoan and Rousova (2010) to identify a chronology of current account reversals is applied to the real growth rate of GDP of more than 100 countries during the period 1971-2007. We use ordered probit models to show that current account reversals associated with improvements in external positions increase the probability of a sustained rise in the rate of growth of GDP (growth acceleration) beyond those generated by real exchange rate effects. Current account reversals associated with a deterioration of external positions make impending GDP accelerations less likely. The macroeconomic policy stance prevailing at the time of current account reversals also matters. High budget deficits thwart the positive effect of a current account improvement on the probability of a growth acceleration. By contrast, a monetary tightening in association with a current account deterioration makes an impending growth acceleration more likely. This paper improves our understanding of how macroeconomic policies help countries maximise the growth payoff of current account improvements. Effet sur la croissance des inversions de balance courante : le rôle des politiques macroéconomiques Ce document examine de manière empirique si les inversions de balance courante ont ou non des effets permanents sur la croissance et quel rôle les politiques macroéconomiques jouent dans ce processus. La méthodologie développée par de Mello, Padoan et Rousova (2010) pour déterminer une chronologie des inversions de balance courante est appliquée aux taux de croissance réelle du PIB de plus de 100 pays sur la période 1971-2007. Des modèles probit sont utilisés pour montrer que les inversions de balance courante associées à des améliorations des positions extérieures augmentent la probabilité d’une hausse soutenue du taux de croissance du PIB (accélération de la croissance). Des inversions de balance courante associées à une dégradation des positions extérieures rendent moins probable une accélération imminente du PIB. L’orientation des politiques macroéconomiques au moment des inversions est également importante. Des déficits budgétaires élevés neutralisent l’effet positif d’un redressement de la balance courante sur la probabilité d’une accélération de la croissance. A l’inverse, un durcissement monétaire associé à une dégradation de la balance courante rend plus probable une accélération imminente de la croissance. Cette étude permet de mieux comprendre comment les politiques macroéconomiques peuvent aider les pays à maximiser les gains de croissance découlant d’améliorations de la balance courante.

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File URL: http://dx.doi.org/10.1787/5kgb1mftj6s3-en
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 871.

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Date of creation: 30 May 2011
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Handle: RePEc:oec:ecoaaa:871-en

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Keywords: monetary policy; current account reversals; fiscal policy; trend GDP growth; croissance du PIB tendanciel; politique budgétaire; politique monétaire; inversions de balance courante;

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