|International Finance Discussion Papers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|Abstract: 
This paper examines the dynamics of current account adjustment among industrialized countries.  We identify twenty-five episodes in which a large sustained improvement in the current account occurred between 1980 and 1997.  We find that a typical current account reversal begins when the current account deficit is about 5 percent of GDP, that it is associated with slowing income growth and a 10-20 percent real exchange rate depreciation.  Real export growth, declining investment, and an eventual leveling off in both the net international investment position and the budget deficit-GDP ratio are also likely to be part of the adjustment.  These results suggest that current account reversals in industrialized countries are largely a function of the business cycle.
Full paper (60 KB PDF)
Keywords 
current account deficit, trade deficit, exchange rate adjustment, currency crisesPDF files: Adobe Acrobat Reader   ZIP files: PKWAREHome | IFDPs | List of 2000 IFDPs
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