IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Are Global Imbalances Sustainable? Shedding Further Light on the Causes of Current Account Reversals

  • Luiz de Mello
  • Pier Carlo Padoan
  • Linda Rousová

Large shifts in countries’ external current account positions can be disruptive, often reflecting sudden stops in the flows of external finance and leading to exchange rate and banking crises. As a result, an empirical literature has emerged on the sustainability of, and the determinants of large swings in, current account positions. We shed further light on this issue by testing for the presence of unit roots in the current account balance-to-GDP ratios of a large set of mature and emerging-market economies using a methodology that allows for structural breaks in intercepts and trends. We then construct a chronology of current account reversals that is consistent with sustainability of external positions and use it to estimate the factors explaining the likelihood and magnitude of such reversals using a selection model with ordered probit in the first stage. We find that most of the factors that explain the probability of reversals, such as trends in capital flows, in the budget balance and in external positions, also influence their magnitude. But there are a few exceptions. For instance, the stance of monetary policy and the magnitude of external imbalances prior to a reversal seem to be more powerful predictors of the probability of reversals than of their magnitude. Les déséquilibres mondiaux sont-ils viables ? : Mieux comprendre les causes des retournements de balance courante Les amples variations des soldes des paiements courants des pays peuvent avoir des effets perturbateurs, puisqu'elles tiennent souvent à de brusques interruptions des entrées de capitaux extérieurs et débouchent fréquemment sur des crises de change et bancaires. En conséquence, de nombreux travaux empiriques ont été réalisés sur la viabilité des soldes des paiements courants et les déterminants de leurs amples fluctuations. Nous apportons un nouvel éclairage sur cette question en procédant à un test de racine unitaire sur les ratios solde des paiements courants/PIB d'un vaste ensemble d'

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1111/j.1467-9396.2012.01035.x
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 20 (2012)
Issue (Month): 3 (08)
Pages: 489-516

as
in new window

Handle: RePEc:bla:reviec:v:20:y:2012:i:3:p:489-516
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576

Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=0965-7576

References listed on IDEAS
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.:

as in new window
  1. Alberto Bagnai & Stefano Manzocchi, 1999. "Current-Account Reversals in Developing Countries: The Role of Fundamentals," Open Economies Review, Springer, vol. 10(2), pages 143-163, May.
  2. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An Equilibrium Model of Global Imbalances and Low Interest Rates," 2006 Meeting Papers 894, Society for Economic Dynamics.
  3. Enrique G. Mendoza & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2007. "Financial Integration, Financial Deepness and Global Imbalances," NBER Working Papers 12909, National Bureau of Economic Research, Inc.
  4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers.
  5. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers.
  6. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  7. Guilherme Valle Moura & Roman Liesenfeld & Jean-Francois Richard, 2008. "Dynamic Panel Probit Models for Current Account Reversals and their Efficient Estimation," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807141048250, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  8. Deborah L. Swenson, 2004. "Foreign Investment and the Mediation of Trade Flows," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 609-629, 09.
  9. Barry Eichengreen & Muge Adalet, 2005. "Current Account Reversals: Always a Problem?," NBER Working Papers 11634, National Bureau of Economic Research, Inc.
  10. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February.
  11. Christian Aßmann & Jens Boysen-Hogrefe, 2010. "Analysis of current account reversals via regime switching models," Economic Change and Restructuring, Springer, vol. 43(1), pages 21-43, February.
  12. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
  13. Giuseppe Nicoletti & Steve Golub & Dana Hajkova & Daniel Mirza & Kwang-Yeol Yoo, 2003. "Policies and International Integration: Influences on Trade and Foreign Direct Investment," OECD Economics Department Working Papers 359, OECD Publishing.
  14. Jörn Kleinert, 2000. "Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing or Increasing Importance of MNE Networks?," Kiel Working Papers 1006, Kiel Institute for the World Economy.
  15. Emanuele Baldacci & Ding Ding & David Coady & Giovanni Callegari & Pietro Tommasino & Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Expenditureson Social Programs and Household Consumption in China," IMF Working Papers 10/69, International Monetary Fund.
  16. Feng, Jin & He, Lixin & Sato, Hiroshi, 2009. "Public pension and household saving: Evidence from China," BOFIT Discussion Papers 2/2009, Bank of Finland, Institute for Economies in Transition.
  17. Gabriele Galati & Guy Debelle, 2005. "Current account adjustment and capital flows," BIS Working Papers 169, Bank for International Settlements.
  18. Mike Kennedy & Torsten Sløk, 2005. "Structural Policy Reforms and External Imbalances," OECD Economics Department Working Papers 415, OECD Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:reviec:v:20:y:2012:i:3:p:489-516. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.