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Patterns of Current Account Adjustment – Insights from Past Experience

  • Bernardina Algieri
  • Thierry Bracke
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    The paper examines episodes of current account adjustment in individual economies. A central finding is that these episodes are very divergent and can be usefully classified, on the basis of cluster analysis, in three groups. A majority of cases is characterised by internal adjustment, exhibiting slowing domestic demand growth. In some cases, the adjustment was mainly external, facilitated by an exchange rate depreciation but without economic slowdown. Finally, some cases involved a crisis-like combination of a severe slowdown and a significant currency depreciation. Using a multinomial logit, we find that this classification of episodes helps improve the predictability of current account adjustment.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-06/cesifo1_wp2029.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2029.

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    Date of creation: 2007
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    Handle: RePEc:ces:ceswps:_2029
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    1. Barry Eichengreen & Muge Adalet, 2005. "Current Account Reversals: Always a Problem?," NBER Working Papers 11634, National Bureau of Economic Research, Inc.
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    18. repec:rus:hseeco:181565 is not listed on IDEAS
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    24. Richard H. Clarida & Manuela Goretti & Mark P. Taylor, 2007. "Are There Thresholds of Current Account Adjustment in the G7?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 169-204 National Bureau of Economic Research, Inc.
    25. Komarek, Lubos & Melecky, Martin, 2005. "Currency Crises, Current Account Reversals and Growth : The Compounded Effect for Emerging Markets," The Warwick Economics Research Paper Series (TWERPS) 735, University of Warwick, Department of Economics.
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