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Sustainable and Excessive Current Account Deficits

  • Helmut Reisen

Large current account deficits are often assumed to play an important role in the propagation of financial crises in emerging markets in receipt of heavy private capital inflows. This paper reaches some major conclusions. First , the Lawson Doctrine — according to which current account deficits that result from a shift in private-sector behaviour should not be a public policy concern — has been discredited by recent currency crises in Latin America and Asia. Second , it is possible to define the size of current account deficits that should be sustainable in the long run. Third , the intertemporal approach to the current account does not provide a reliable benchmark to define when deficits become “excessive”. Fourth , large external deficits should be resisted if unsustainable currency appreciation, excessive risk-taking in the banking system and a sharp drop in private savings are seen to coincide ... Les déficits de la balance des opérations courantes sont-ils largement responsables de la propagation des crises financières dans les marchés émergents qui reçoivent des flux importants de capitaux privés ? Ce document présente plusieurs résultats de recherche relatifs à ce problème. Premièrement , la doctrine de Lawson — selon laquelle les politiques publiques ne devraient pas se soucier des déficits des comptes courants liés aux comportements incohérents du secteur privé — a été discréditée par les crises monétaires qui ont récemment frappé l’Asie et l’Amérique latine. Deuxièmement , il est possible de préciser quel niveau de déficit des comptes courants est tenable à long terme. Troisièmement , on ne peut se fier à une approche intertemporelle pour définir le seuil à partir duquel les déficits deviennent « excessifs ». Quatrièmement, il faut éviter les déficits extérieurs importants lorsque la monnaie est surévaluée, que le secteur bancaire prend trop de risques et que l’on observe ...

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Article provided by Springer in its journal Empirica.

Volume (Year): 25 (1998)
Issue (Month): 2 (January)
Pages: 111-131

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Handle: RePEc:kap:empiri:v:25:y:1998:i:2:p:111-131
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  1. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
  2. Razin, A., 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," Papers 2-93, Tel Aviv - the Sackler Institute of Economic Studies.
  3. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
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  8. Landis MacKellar & Helmut Reisen, 1998. "A Simulation Model of Global Pension Investment," OECD Development Centre Working Papers 137, OECD Publishing.
  9. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
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  13. Maurice Obstfeld and Kenneth Rogoff., 1994. "The Intertemporal Approach to the Current Account," Center for International and Development Economics Research (CIDER) Working Papers C94-044, University of California at Berkeley.
  14. Helmut Reisen, 1996. "Net capital inflows: how much to accept, how much to resist?," Proceedings, Federal Reserve Bank of San Francisco, pages 289-321.
  15. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
  16. Adrian Blundell-Wignall & Frank Browne, 1991. "Macroeconomic Consequences of Financial Liberalisation: A Summary Report," OECD Economics Department Working Papers 98, OECD Publishing.
  17. Calvo, Guillermo A., 1987. "On the costs of temporary policy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 245-261, October.
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  19. Fry, M., 1996. "How Foreign Direct Investment in Pacific Asia Improves in Current Account," Papers 96-02, University of Birmingham - International Financial Group.
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