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

  • William D. Craighead
  • David R. Hineline

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.

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Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 36 (2013)
Issue (Month): 12 (December)
Pages: 1516-1541

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Handle: RePEc:bla:worlde:v:36:y:2013:i:12:p:1516-1541
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