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Current Account Developments in New Member States of the European Union; Equilibrium, Excess, and EU-Phoria

  • Jesmin Rahman

This paper analyzes current account (CA) developments in the following 10 new EU members states: Czech Republic, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. During the last 15 years, these countries, on average, have run CA deficits that are considerably higher than the average CA deficit of other developing countries. However, more recently, a diverging pattern has emerged among these countries with one group, consisting of the Baltic countries, Bulgaria and Romania, experiencing rapid widening, while the others seeing a stabilization in their CA balances. Using panel data for 59 countries, this paper empirically investigates the following three questions: Are higher average deficits in EU-10 explained by medium-term macroeconomic fundamentals? What explains the diverging CA behavior among EU-10? And finally, how challenging is it for the group experiencing rapidly widening CA deficits to reverse the trend?

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/92.

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Length: 34
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/92
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  1. Francesco Caselli & Silvana Tenreyro, 2006. "Is Poland the Next Spain?," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 459-533 National Bureau of Economic Research, Inc.
  2. Herrmann, Sabine & Jochem, Axel, 2005. "Trade balances of the central and east European EU member states and the role of foreign direct investment," Discussion Paper Series 1: Economic Studies 2005,41, Deutsche Bundesbank, Research Centre.
  3. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
  4. Robin Brooks & Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
  5. Aizenman, Joshua & Sun, Yi, 2009. "Globalization and the Sustainability of Large Current Account Imbalances: Size Matters," Santa Cruz Department of Economics, Working Paper Series qt4s3478nz, Department of Economics, UC Santa Cruz.
  6. Daniel Leigh & Abdul Abiad & Ashoka Mody, 2007. "International Finance and Income Convergence; Europe is Different," IMF Working Papers 07/64, International Monetary Fund.
  7. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
  8. 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.
  9. 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.
  10. Philip Schellekens & Rudolfs Bems, 2007. "Finance and Convergence; What's Ahead for Emerging Europe?," IMF Working Papers 07/244, International Monetary Fund.
  11. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
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