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Current Account Reversals and Currency Crises: Empirical Regularities

Listed author(s):
  • Gian Maria Milesi-Ferrett
  • Assaf Razin

This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds that both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade and high interest rates in industrial countries, trigger reversals and currency crises. The two types of events are, however, distinct; indeed, current account imbalances are not sharply reduced in the years following a currency crisis. Economic performance around these events is also quite different. An exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversal events there is no systematic evidence of a growth slowdown.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6620.

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Date of creation: Jun 1998
Publication status: published as Current Account Reversals and Currency Crises: Empirical Regularities , Gian Maria Milesi Ferretti, Assaf Razin. in Currency Crises , Krugman. 2000
Handle: RePEc:nbr:nberwo:6620
Note: PE
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