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Impact of GDP volatility on current account balances

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Author Info

  • Michał Brzozowski

    ()
    (Faculty of Economic Sciences, University of Warsaw)

  • Sadananda Prusty

    ()
    (Institute of Management Technology)

Abstract

This paper empirically investigates the impact of GDP volatility on current account balances for a large sample of developed and developing countries. We extend the standard set of short- and long-term determinants of current accounts to include GDP volatility computed from the annual growth rate of GDP. It turns out that for low income countries the impact of GDP volatility on their current account balances is negative, whereas the reverse is true for high income countries. The intertemporal approach to the balance of payments followed in this paper suggests that a diverse response of current account balances to GDP volatility can be due to the different degree of shock persistence in developed and developing countries.

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File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP42.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2011-02.

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Length: 19 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:war:wpaper:2011-02

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Related research

Keywords: current account; savings; investment; volatility;

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  1. Schmidt-Hebbel, Klaus & Webb, Steven B. & Corsetti, Giancarlo, 1991. "Household saving in developing countries : first cross-country evidence," Policy Research Working Paper Series 575, The World Bank.
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Cited by:
  1. Ceyhun Elgin & Tolga Umut Kuzubas, 2013. "Current Account Balances and Output Volatility," Working Papers 2013/04, Bogazici University, Department of Economics.

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