Working Paper: CEPR ID: DP1509
Authors: Gian Maria Milesi-Ferretti; Assaf Razin
Abstract: A number of developing countries have run large and persistent current account deficits in both the late-1970s/early-1980s and in the early-1990s, raising the issue of whether these persistent imbalances are sustainable. This paper puts forward a notion of current account sustainability and compares the experience of three Latin American countries ? Chile, Colombia and Mexico ? and three East Asian countries ? Korea, Malaysia and Thailand. It identifies a number of potential sustainability indicators and discusses their usefulness in predicting external crises.
Keywords: current account sustainability; savings; real exchange rate; exports
JEL Codes: F32; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade surpluses (F10) | debt repayment capabilities (F34) |
| current policy stance (E63) | turning point from trade deficits to surpluses (F32) |
| policy stance (E60) | recession or financial crisis (G01) |
| external shocks (F69) | domestic and foreign investor confidence (F21) |
| domestic and foreign investor confidence (F21) | reversal of capital flows (F32) |
| excessive current account deficits (F32) | assessment of imbalances (F32) |
| macroeconomic behavior (E70) | current account sustainability (F32) |