Financial Openness, Sudden Stops, and Current-Account Reversals

Edwards, Sebastián

doi:10.1257/0002828041302217

Cited by 192 publications

(155 citation statements)

References 3 publications

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“…With respect to economic costs of reversals, previous empirical work has arrived at different conclusions. While Razin (1998, 2000) find no systematic growth slowdown, our results support the view of Edwards (2004) attributing a significant growth reduction to reversal episodes. Our estimates amount to a reduction of annual GDP growth by 4%, where output costs are found to be heterogeneous across countries.…”

supporting

confidence: 78%

“…As documented in the literature, non-linearities that are caused by sharp current account movements are observed within this relationship, therefore indicating the presence of sharp and in terms of economic growth costly adjustment processes, see e.g. Edwards (2004). In the following, a Markov switching vector autoregressive model (MS-VAR) is proposed to assess costs in terms of economic growth implied by the occurrence of a reversal.…”

Section: Model Descriptionmentioning

confidence: 91%

“…In the following, a total of six different identification schemes are summarized, which are discussed in the literature, see e.g. Milesi-Ferretti and Razin (1998) and Edwards (2004). 7 Reversals are characterized as changes in the average level of current account balance.…”

Section: Data Description and Problems Of Reversal Identification Viamentioning

confidence: 99%

“…1 Empirical analysis of determinants and costs of current account reversals via probit and treatment regressions, see e.g. Milesi-Ferretti and Razin (2000) and Edwards (2004), has to rely on identification schemes of reversal episodes. The literature documents two ways to identify a reversal.…”

mentioning

confidence: 99%

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Analysis of current account reversals via regime switching models

Aßmann

Boysen-Hogrefe

2009

Econ Change Restruct

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supporting

confidence: 78%

Section: Model Descriptionmentioning

confidence: 91%

Section: Data Description and Problems Of Reversal Identification Viamentioning

confidence: 99%

mentioning

confidence: 99%

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Analysis of current account reversals via regime switching models

Aßmann

Boysen-Hogrefe

2009

Econ Change Restruct

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“…Stability of capital flows matters for the stability of the business cycle as well as for avoiding sudden current account reversals, which have a broadly negative effect on economics growth (Edwards 2004).…”

Section: Introductionmentioning

confidence: 99%

Foreign Direct Investment Attraction in the Baltic States

Saksonova

2014

Business: Theory and Practice

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Current Account Reversals in Industrial Countries: does the Exchange Rate Regime Matter?

Pancaro

Saborowski

2015

Int. J Fin Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. All rights reserved. Terms of use: Documents in ISSN 1725-2806 (online) EU Catalogue NoQB-AR-13-044-EN-N (online)Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. Abstract This paper studies current account reversals in industrial countries across different exchange rate regimes. There are two major findings which have important implications for industrial economies with external imbalances: first, triggers of current account reversals differ between exchange rate regimes. While the current account deficit and the output gap are significant predictors of reversals across all regimes, reserve coverage, credit booms, openness to trade and the US short term interest rate determine the likelihood of reversals only under more rigid regimes. Conversely, the real exchange rate affects the probability of experiencing a reversal only under flexible arrangements. Second, current account reversals in advanced economies do not have an independent effect on growth. This result holds not only for industrial economies in general but also for countries with fixed exchange rate regimes in particular.Keywords: Current account, reversals, exchange rate regime JEL Classification: F32, F41 Non-Technical SummarySharp external adjustments that lead to a sustained current account improvement are commonly referred to as current account reversals. Reversals have been analyzed intensively in the literature, typically with a focus on the channels through which they are achieved as well as on the question whether they have implications for real economic performance. However, one aspect that has received only limited attention is the relationship between current account reversals and exchange rate regimes, an aspect that is especially timely with regard to the existing external imbalances within the Euro area. The present paper contributes to this strand of the literature by presenting a systematic analysis of current account reversals across different de-facto exchange rate regimes in industrial countries. In particular, it examines whether current account reversals follow different patterns depending on the exchange rate regime in place.Moreover, it identifies triggers of reversals and examines the link between reversals and growth across different exchange rate regimes. The analysis focuses precisely on...

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Financial Openness, Sudden Stops, and Current-Account Reversals

Cited by 192 publications

References 3 publications

Analysis of current account reversals via regime switching models

Analysis of current account reversals via regime switching models

Foreign Direct Investment Attraction in the Baltic States

Current Account Reversals in Industrial Countries: does the Exchange Rate Regime Matter?

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