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Asymmetric behaviour of current account sustainability in Latin America

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  • Daniel Ordoñez†Callamand
  • Luis F. Melo†Velandia
  • Oscar M. Valencia†Arana

Abstract

This paper studies current account sustainability in four major Latin American countries from 1996 to 2016. We use an empirical model that allows for the presence of several regimes. We find that there is a long†run relationship between the income and expenditure of the current account for Chile, Mexico, Colombia, and Brazil. However, the results imply that while long†run stable surpluses are expected in the first two countries, long†run deficits are expected for the other two. This result provides valuable insights for macroeconomic authorities in developing economies for quantifying their external balance vulnerabilities and designing policies to effectively counteract the negative effects of external shocks.

Suggested Citation

  • Daniel Ordoñez†Callamand & Luis F. Melo†Velandia & Oscar M. Valencia†Arana, 2018. "Asymmetric behaviour of current account sustainability in Latin America," International Finance, Wiley Blackwell, vol. 21(1), pages 2-22, March.
    • Handle: RePEc:bla:intfin:v:21:y:2018:i:1:p:2-22
    DOI: 10.1111/infi.12124
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