Current Account Adjustment and Capital Flows

25 Pages Posted: 22 Oct 2007

See all articles by Guy Debelle

Guy Debelle

Reserve Bank of Australia

Gabriele Galati

De Nederlandsche Bank

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We examine episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizable growth slowdown and a large exchange rate depreciation. There was no discernible change in the nature of capital flows just prior to an adjustment. Hence, adjustments may be responding to the resolution of domestic imbalances rather than being an exogenous event. We show that global developments triggered the adjustment, possibly by triggering the unwinding of the domestic imbalances. Most of the ex post adjustment of the financial account was in private sector flows, primarily by foreign investors.

Suggested Citation

Debelle, Guy and Galati, Gabriele, Current Account Adjustment and Capital Flows. Review of International Economics, Vol. 15, No. 5, pp. 989-1013, November 2007. Available at SSRN: or

Guy Debelle (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

Gabriele Galati

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

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