The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union

27 Pages Posted: 27 Jul 2006

Date Written: June 2006

Abstract

The article investigates the main factors of current account deficits in order to assess the potential excessiveness of current account deficits in selected countries of Eastern Europe and former Soviet Union. According to the simulated benchmark calculated on the basis of selected determinants (in period 1992-2003), the results confirm that the actual current account balances are generally close to their estimated levels in the 2000-2003 period in the transition region. This notion is in line with the intertemporal approach to the current account balance, suggesting that higher external deficits are a natural outcome when permanent domestic output exceeds the current one and when current investments and government consumption exceed their permanent levels. Hence, the results suggest that most countries in Eastern Europe and former Soviet Union are justified in running relatively high current account deficits.

Keywords: transition countries, current account deficits, excessiveness, determinants, dynamic panel data

JEL Classification: C33, F32

Suggested Citation

Aristovnik, Aleksander, The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union (June 2006). William Davidson Institute Working Paper No. 827, Available at SSRN: https://ssrn.com/abstract=920507 or http://dx.doi.org/10.2139/ssrn.920507

Aleksander Aristovnik (Contact Author)

University of Ljubljana ( email )

Dunajska 104
1000 Ljubljana, 1000
Slovenia

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