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As the Current Account Turns: Disaggregating the Effects of Current Account Reversals in Industrial Countries

Author

Listed:
  • William D. Craighead

    (Department of Economics, Wesleyan University)

  • David R. Hineline

    (Department of Economics, Richard T. Farmer School of Business, Miami University)

Abstract

This paper extends the study of current account reversals by considering the implications for the composition of output and employment. It is shown that decreases in current account deficits imply increases in tradable relative to nontradable output and/or declines in investment. The impact of current account “rebalancing” should therefore be expected to vary considerably across sectors of an economy. This inter-sectoral variation is studied by examining the dynamics of output, employment and prices using data for 55 sectors of the economy during 14 industrial country reversal episodes. The output and employment declines associated with current account reversals are most clearly evident in investment-related sectors, while sectors related to primary commodities generally perform relatively well following reversals. Reversals are also followed by increases in relative inflation for tradable goods sectors.

Suggested Citation

  • William D. Craighead & David R. Hineline, 2011. "As the Current Account Turns: Disaggregating the Effects of Current Account Reversals in Industrial Countries," Wesleyan Economics Working Papers 2011-002, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2011-002
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    References listed on IDEAS

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    Cited by:

    1. Milan Nedeljkovic & Gonzalo Varela & Michele Savini Zangrandi, 2015. "Indonesia Current Account Assessment," World Bank Publications - Reports 22340, The World Bank Group.
    2. Sauré, Philip, 2017. "Time-intensive R&D and unbalanced trade," European Economic Review, Elsevier, vol. 91(C), pages 229-244.
    3. William D. Craighead & David R. Hineline, 2015. "Current account reversals and structural change in developing and industrialized countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(1), pages 147-171, February.
    4. Jong-Hee Kim & Joocheol Kim, 2014. "Intra and offshore trade in the euro zone and trade imbalances," Applied Economics Letters, Taylor & Francis Journals, vol. 21(15), pages 1060-1064, October.

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    Keywords

    Temporal Current Account;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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