A Financial Analysis of the Economic Effects of Having to Reverse Current Account Deficits
63 Pages Posted: 25 Apr 2000 Last revised: 10 Nov 2008
This research develops a theoretical model of current account deficits that explains the effects of having to reverse such imbalances. The theory defines precise mathematical relationships which should exist between the balance of payments, exchange rates, interest rates, inflation, income, and investor expectations. Applying the model to various examples indicates that it is consistent with both currency crises and less volatile situations.
JEL Classification: F32
Suggested Citation: Suggested Citation