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The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union

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Aleksander Aristovnik ()

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Abstract

The article investigates the main factors of current account deficits in order to assess the potential excessiveness of current account deficits in selected countries of Eastern Europe and former Soviet Union. According to the simulated benchmark calculated on the basis of selected determinants (in period 1992-2003), the results confirm that the actual current account balances are generally close to their estimated levels in the 2000-2003 period in the transition region. This notion is in line with the intertemporal approach to the current account balance, suggesting that higher external deficits are a natural outcome when permanent domestic output exceeds the current one and when current investments and government consumption exceed their permanent levels. Hence, the results suggest that most countries in Eastern Europe and former Soviet Union are justified in running relatively high current account deficits.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp827.pdf
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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number wp827.

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Date of creation: 01 Jun 2006
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Handle: RePEc:wdi:papers:2006-827

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Related research
Keywords: transition countries; current account deficits; excessiveness; determinants; dynamic panel data;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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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. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 337-365. [Downloadable!] (restricted)
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  2. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank. [Downloadable!]
  3. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile. [Downloadable!]
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  4. Xiujian Chen & Shu Lin & W. Robert Reed, 2005. "Another Look At What To Do With Time-Series Cross-Section Data," Econometrics 0506004, EconWPA. [Downloadable!]
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  5. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May. [Downloadable!] (restricted)
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