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Sustainable and Excessive Current Account Deficits

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  • Helmut Reisen

Abstract

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 ...

Suggested Citation

  • Helmut Reisen, 1998. "Sustainable and Excessive Current Account Deficits," OECD Development Centre Working Papers 132, OECD Publishing.
  • Handle: RePEc:oec:devaaa:132-en
    DOI: 10.1787/808008067635
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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