Current Account Reversals and Currency Crises: Empirical Regularities
44 Pages Posted: 15 Feb 2006
Date Written: June 1998
This paper studies large reductions in current account deficits and 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. Both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade, are found to trigger reversals and currency crises. The two types of events are, however, distinct; an exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversals there is no systematic evidence of a growth slowdown.
Keywords: currency crisis, current account reversal, growth, real exchange rate
JEL Classification: F32, F34
Suggested Citation: Suggested Citation