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Determinants and dynamics of current account reversals: an empirical analysis

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  • Liesenfeld, Roman
  • Moura, Guilherme V.
  • Richard, Jean-François

Abstract

We use panel probit models with unobserved heterogeneity, state-dependence and serially correlated errors in order to analyze the determinants and the dynamics of current-account reversals for a panel of developing and emerging countries. The likelihood-based inference of these models requires high-dimensional integration for which we use Efficient Importance Sampling (EIS). Our results suggest that current account balance, terms of trades, foreign reserves and concessional debt are important determinants of current-account reversal. Furthermore, we find strong evidence for serial dependence in the occurrence of reversals. While the likelihood criterion suggest that state-dependence and serially correlated errors are essentially observationally equivalent, measures of predictive performance provide support for the hypothesis that the serial dependence is mainly due to serially correlated country-specific shocks related to local political or macroeconomic events. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2009,04.

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Date of creation: 2009
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Handle: RePEc:zbw:cauewp:200904

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Keywords: Panel data; dynamic discrete choice; importance sampling; Monte Carlo integration; state dependence; spillover effects;

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  6. Himarios, Daniel, 1989. "Do Devaluations Improve the Trade Balance? The Evidence Revisited," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 27(1), pages 143-68, January.
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Cited by:
  1. Mesters, G. & Koopman, S.J., 2014. "Generalized dynamic panel data models with random effects for cross-section and time," Journal of Econometrics, Elsevier, Elsevier, vol. 180(2), pages 127-140.
  2. Bijsterbosch, Martin & Dahlhaus, Tatjana, 2011. "Determinants of credit-less recoveries," Working Paper Series, European Central Bank 1358, European Central Bank.
  3. Theofilakou, Nancy & Stournaras, Yannis, 2012. "Current account adjustments in OECD countries revisited: The role of the fiscal stance," Journal of Policy Modeling, Elsevier, Elsevier, vol. 34(5), pages 719-734.

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