Current Account Reversals and Currency Crises: Empirical Regularities

54 Pages Posted: 25 May 2006

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

National Bureau of Economic Research (NBER); Senior Fellow; Centre for Economic Policy Research (CEPR)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 1998

Abstract

This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds that both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade and high interest rates in industrial countries, trigger reversals and currency crises. The two types of events are, however, distinct; indeed, current account imbalances are not sharply reduced in the years following a currency crisis. Economic performance around these events is also quite different. An exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversal events there is no systematic evidence of a growth slowdown.

Suggested Citation

Milesi-Ferretti, Gian Maria and Milesi-Ferretti, Gian Maria and Razin, Assaf, Current Account Reversals and Currency Crises: Empirical Regularities (June 1998). Available at SSRN: https://ssrn.com/abstract=226340

Gian Maria Milesi-Ferretti (Contact Author)

National Bureau of Economic Research (NBER)

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Assaf Razin

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Centre for Economic Policy Research (CEPR)

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