Current Account Deficits, Macroeconomic Policy Stance and Governance: An Empirical Investigation
Middle East Technical University (METU) - Department of Economics
ERC Economics Working Paper No. 04/14
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, F41working papers series
Date posted: October 20, 2004
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