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Assessing the Effect of Current Account and Currency Crises on Economic Growth

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Author Info
Aßmann, Christian
Abstract

Several empirical studies are concerned with measuring the effect of currency and current account crises on economic growth. Using different empirical models this paper serves two aspects. It provides an explicit assessment of country specific factors influencing the costs of crises in terms of economic growth and controls via a treatment type model for possible sample selection governing the occurrence of crises in order to estimate the impact on economic growth correctly. The applied empirical models allow for rich intertemporal dependencies via serially correlated errors and capture latent country specific heterogeneity via random coe?cients. For accurate estimation of the treatment type model a simulated maximum likelihood approach employing efficient importance sampling is used. The results reveal significant costs in terms of economic growth for both crises. Costs for reversals are linked to country specific variables, while costs for currency crises are not. Furthermore, shocks explaining current account reversals and growth show strong significant positive correlation. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,01.

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Date of creation: 2008
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Handle: RePEc:zbw:cauewp:6878

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Web page: http://www.wiso.uni-kiel.de/econ/

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Keywords: Currency crises; Current account reversals; Treatment Model; Discrete dependent variable; Efficient Importance Sampling; Panel Data;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
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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