Current Account Deficits, Macroeconomic Policy Stance and Governance: An Empirical Investigation

Ozmen, Erdal

doi:10.2139/ssrn.606641

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Current Account Deficits, Macroeconomic Policy Stance and Governance: An Empirical Investigation

Erdal Ozmen

Middle East Technical University (METU) - Department of Economics

October 2004

ERC Economics Working Paper No. 04/14

Abstract:
This paper empirically investigates the effects of institutional and macroeconomic policy stance variables on current account deficits (CAD). Based on cross-section data for a broad number of developing and industrial countries, the results strongly suggest that better governance increases whilst the presence of original sin decreases the ability of an economy to sustain CAD. Exchange rate flexibility and openness appear to put a discipline on CAD. Consistent with the equity home bias and Feldstein-Horioka puzzle, CAD decrease with country size. The net impacts of the financial deepening and monetary credibility on CAD are found to be insignificant.

Number of Pages in PDF File: 11

Keywords: Current Account, Exchange Rate Regimes, Original Sin

JEL Classification: F32, F41

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Date posted: October 20, 2004

Suggested Citation

Ozmen, Erdal, Current Account Deficits, Macroeconomic Policy Stance and Governance: An Empirical Investigation (October 2004). ERC Economics Working Paper No. 04/14. Available at SSRN: http://ssrn.com/abstract=606641 or http://dx.doi.org/10.2139/ssrn.606641

Contact Information

Erdal Ozmen (Contact Author)

Middle East Technical University (METU) - Department of Economics ( email )

Inonu Bulvari
Ankara 06531
Turkey