Patterns of Current Account Adjustment - Insights from Past Experience

56 Pages Posted: 28 Jun 2007

See all articles by Bernardina Algieri

Bernardina Algieri

University of Calabria - Department of Economics and Statistics; University of Bonn - Department of Economic and Technological Change

Thierry Bracke

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2007

Abstract

The paper examines over seventy episodes of current account adjustment in industrial and major emerging market economies. It argues that these episodes were characterised by strongly divergent economic developments. To reduce this divergence, the paper classifies episodes with similar characteristics in three groups, using cluster analysis. A majority of cases was characterised by internal adjustment through a slowdown of domestic demand and did not involve significant exchange rate movements. In some cases, the adjustment was mainly external, facilitated by a relatively modest exchange rate depreciation and without economic slowdown. Finally, some cases involved a crisis-like combination of a severe slowdown and a significant currency depreciation. Using a multinomial logit, we find that this classification of episodes helps improve the predictability of current account adjustment.

Keywords: External imbalances, current account adjustment, cluster analysis, multinomial logit

JEL Classification: F32, C14, C25

Suggested Citation

Algieri, Bernardina and Bracke, Thierry, Patterns of Current Account Adjustment - Insights from Past Experience (June 2007). ECB Working Paper No. 762, Available at SSRN: https://ssrn.com/abstract=989726 or http://dx.doi.org/10.2139/ssrn.989726

Bernardina Algieri (Contact Author)

University of Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Rende (Cosenza), Cosenza 87036
Italy

University of Bonn - Department of Economic and Technological Change ( email )

Walter-Flex-Str. 3
Bonn, 53113
Germany

Thierry Bracke

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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