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Current Account Reversals In Selected Transition Countries

Author

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  • Aleksander Aristovnik

    (University of Ljubljana, Slovenia)

Abstract

The paper investigates sharp reductions seen in current account deficits in selected transition countries in the 1992-2003 period. The analysis focuses on three important aspects of these current account reversals: a) to examine those factors that might have triggered the reversals and to provide some insights into the current account adjustment process; b) to reveal some characteristics of persistent current account deficits; and c) to investigate the direct impact of these reversals on economic growth in the region. Results suggest that restrictively defined reversals seem to be closely related to factors such as domestic savings, real export growth, international reserves and external indebtedness as well as with the budget and trade balances. While the role of exchange rate depreciation seems ambiguous, we found that the sharp current account reversals are systematically associated with a gradual GDP growth slowdown in the pre-reversal period and with robust GDP growth impetus afterwards. Indeed, less restrictively defined reversals show that reversals are associated with an increase of output by around 1.20 percentage points in the second year of recovery. Finally, the results suggest the significant possibility that persistent current account deficits, which on average last more than five years, are consumption-driven in the transition countries.

Suggested Citation

  • Aleksander Aristovnik, 2005. "Current Account Reversals In Selected Transition Countries," International Finance 0510021, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0510021
    Note: Type of Document - doc; pages: 31
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0510/0510021.doc
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    References listed on IDEAS

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    Cited by:

    1. Radulescu, Magdalena, 2006. "The Impact of the National Bank of Romania's Monetary Policy on the Banking Credits, the Domestic Savings and Investments (As Compared to the Other Central and Eastern European Countries)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 3(2), pages 10-31, June.
    2. Hsing, Yu, 2009. "Responses of Output to Declining Stock Values and Real Depreciation in Lituania," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(4), pages 429-437.
    3. Algieri, Bernardina & Bracke, Thierry, 2007. "Patterns of current account adjustment: insights from past experience," Working Paper Series 762, European Central Bank.
    4. Bernardina Algieri & Thierry Bracke, 2007. "Patterns of Current Account Adjustment – Insights from Past Experience," CESifo Working Paper Series 2029, CESifo Group Munich.
    5. Radulescu, Magdalena, 2007. "The impact of the National Bank of Romania Monetary Policy on the Balance of Payments," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(2), pages 26-43, June.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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