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Sustainability of Persistent Current Account Deficits

  • Gian Maria Milesi-Ferrett
  • Assaf Razin

This paper puts forward a notion of current account sustainability that explicitly takes into account willingness to pay and willingness to lend in addition to intertemporal solvency. It argues that this notion of sustainability provides a better framework for understanding the variety of country experiences with protracted current account imbalances. Based on this notion, we identify a number of operational indicators related to the structure of the economy, the economic policy stance, and political economy factors. We use these sustainability indicators to evaluate the experience of a number of countries that ran persistent current account imbalances, and derive policy implications consistent with our notion of sustainability.

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File URL: http://www.nber.org/papers/w5467.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5467.

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Date of creation: Feb 1996
Date of revision:
Publication status: published as International Journal of Finance Economics, vol. 1, no. 3, pp. 161-181, July 1996.
Handle: RePEc:nbr:nberwo:5467
Note: IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
  2. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, World Bank Group, vol. 9(2), pages 305-33, May.
  3. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  4. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-55, June.
  5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  6. Home, Jocelyn, 1991. "Criteria of external sustainability," European Economic Review, Elsevier, vol. 35(8), pages 1559-1574, December.
  7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  8. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
  9. Elhanan Helpman & David T. Coe & Alexander W. Hoffmaister, 1994. "North-South RandD Spillovers," IMF Working Papers 94/144, International Monetary Fund.
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