Current account adjustments in OECD countries revisited: The role of the fiscal stance
This paper revisits the adjustment path of key economic and financial indicators during large current account adjustment episodes in OECD countries, after controlling for discretionary fiscal policy behavior. We find that the drivers of current account deficit reversals differ according to the fiscal policy stance. In economies with expansionary fiscal policies, external sector adjustment is driven by cyclical and credit factors. In economies implementing fiscal consolidation, adjustment is triggered by fiscal and financial factors, while the disruptive effects of the adjustment are smaller. We conclude that fiscally challenged economies facing external imbalances could ameliorate the adjustment path through fiscal consolidation policies.
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.
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.
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.:
- Small, Kenneth A & Hsiao, Cheng, 1985. "Multinomial Logit Specification Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 619-27, October.
- Gian Maria Milesi-Ferrett & Assaf Razin, 1997.
"Sharp Reductions in Current Account Deficits: An Empirical Analyis,"
NBER Working Papers
6310, National Bureau of Economic Research, Inc.
- Maria Milesi-Ferretti, Gian & Razin, Assaf, 1998. "Sharp reductions in current account deficits An empirical analysis," European Economic Review, Elsevier, vol. 42(3-5), pages 897-908, May.
- Gian Milesi-Ferretti & Assaf Razin, 1997. "Sharp Reductions in Current Account Deficits; An Empirical Analysis," IMF Working Papers 97/168, International Monetary Fund.
- Rogoff, Kenneth, 2006.
"Global imbalances and exchange rate adjustment,"
Journal of Policy Modeling,
Elsevier, vol. 28(6), pages 695-699, September.
- Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010.
"A New Database of Financial Reforms,"
IMF Staff Papers,
Palgrave Macmillan, vol. 57(2), pages 281-302, June.
- Chinn, Menzie D. & Ito, Hiro, 2007.
"Current account balances, financial development and institutions: Assaying the world "saving glut","
Journal of International Money and Finance,
Elsevier, vol. 26(4), pages 546-569, June.
- Menzie D. Chinn & Hiro Ito, 2005. "Current Account Balances, Financial Development and Institutions: Assaying the World "Savings Glut"," NBER Working Papers 11761, National Bureau of Economic Research, Inc.
- Soyoung Kim & Nouriel Roubini, 2004.
"Twin Deficit or Twin Divergence? Fiscal Policy, Current Account, and Real Exchange Rate in the US,"
Econometric Society 2004 North American Winter Meetings
271, Econometric Society.
- Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
- Roman Liesenfeld & Guilherme Valle Moura & Jean-François Richard, 2010.
"Determinants and Dynamics of Current Account Reversals: An Empirical Analysis,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 72(4), pages 486-517, 08.
- Liesenfeld, Roman & Moura, Guilherme V. & Richard, Jean-François, 2009. "Determinants and dynamics of current account reversals: an empirical analysis," Economics Working Papers 2009,04, Christian-Albrechts-University of Kiel, Department of Economics.
- Edwards, Sebastian, 2006.
"The U.S. current account deficit: Gradual correction or abrupt adjustment?,"
Journal of Policy Modeling,
Elsevier, vol. 28(6), pages 629-643, September.
- Sebastian Edwards, 2006. "The U.S. Current Account Deficit: Gradual Correction or Abrupt Adjustment?," NBER Working Papers 12154, National Bureau of Economic Research, Inc.
- D. McFadden & J. Hausman, 1981.
"Specification Tests for the Multinominal Logit Model,"
292, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-40, September.
- Gabriele Galati & Guy Debelle, 2005.
"Current account adjustment and capital flows,"
BIS Working Papers
169, Bank for International Settlements.
- Calista Cheung & Davide Furceri & Elena Rusticelli, 2010.
"Structural and Cyclical Factors behind Current-Account Balances,"
OECD Economics Department Working Papers
775, OECD Publishing.
- Calista Cheung & Davide Furceri & Elena Rusticelli, 2013. "Structural and Cyclical Factors behind Current Account Balances," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 923-944, November.
- Harvey, Andrew C. & Delle Monache, Davide, 2009. "Computing the mean square error of unobserved components extracted by misspecified time series models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 283-295, February.
- Salvatore, Dominick, 2006. "Twin deficits in the G-7 countries and global structural imbalances," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 701-712, September.
- Menzie D. Chinn & Eswar S. Prasad, 2000.
"Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration,"
NBER Working Papers
7581, National Bureau of Economic Research, Inc.
- Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
- Menzie David Chinn & Eswar Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries; An Empirical Exploration," IMF Working Papers 00/46, International Monetary Fund.
- Caroline Freund & Frank Warnock, 2005.
"Current Account Deficits in Industrial Countries: The Bigger They are, the Harder They Fall?,"
NBER Working Papers
11823, National Bureau of Economic Research, Inc.
- Caroline Freund & Frank Warnock, 2007. "Current Account Deficits in Industrial Countries: The Bigger They Are, The Harder They Fall?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 133-168 National Bureau of Economic Research, Inc.
- Hilary Croke & Steven B. Kamin & Sylvain Leduc, 2005. "Financial market developments and economic activity during current account adjustments in industrial economies," International Finance Discussion Papers 827, Board of Governors of the Federal Reserve System (U.S.).
- Leo de Haan & Hubert Schokker & Anastassia Tcherneva, 2008.
"What Do Current Account Reversals in OECD Countries Tell Us About the US Case?,"
The World Economy,
Wiley Blackwell, vol. 31(2), pages 286-311, 02.
- Leo de Haan & Hubert Schokker & Anastassia Tcherneva, 2006. "What do current account reversals in OECD countries tell us about the US case?," DNB Working Papers 111, Netherlands Central Bank, Research Department.
- Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 500-522, June.
- Sebastian Edwards, 2005.
"Capital Controls, Sudden Stops and Current Account Reversals,"
NBER Working Papers
11170, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2007. "Capital Controls, Sudden Stops, and Current Account Reversals," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 73-120 National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 211-288.
- Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
- JÃ¶rg Decressin & Emil Stavrev, 2009. "Current Accounts in a Currency Union," IMF Working Papers 09/127, International Monetary Fund.
- Freund, Caroline, 2005. "Current account adjustment in industrial countries," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1278-1298, December.
- Papadogonas, Theodore & Stournaras, Yannis, 2006. "Twin deficits and financial integration in EU member-states," Journal of Policy Modeling, Elsevier, vol. 28(5), pages 595-602, July.
- Bernardina Algieri & Thierry Bracke, 2007. "Patterns of Current Account Adjustment – Insights from Past Experience," CESifo Working Paper Series 2029, CESifo Group Munich.
- Calvo, Guillermo & Talvi, Ernesto, 2006. "The resolution of global imbalances: Soft landing in the North, sudden stop in emerging markets?," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 605-613, September.
- Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series 4943, The World Bank.
- Algieri, Bernardina & Bracke, Thierry, 2007. "Patterns of current account adjustment: insights from past experience," Working Paper Series 0762, European Central Bank.
- J. Scott Long & Jeremy Freese, 2006. "Regression Models for Categorical Dependent Variables using Stata, 2nd Edition," Stata Press books, StataCorp LP, edition 2, number long2, September.
When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:34:y:2012:i:5:p:719-734. 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: (Zhang, Lei)
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.