Arbeitspapier

Current account reversals in industrial countries: does the exchange rate regime matter?

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.

Language
Englisch

Bibliographic citation
Series: ECB Working Paper ; No. 1547

Classification
Wirtschaft
Current Account Adjustment; Short-term Capital Movements
Open Economy Macroeconomics
Subject
current account
exchange rate regime
reversals

Event
Geistige Schöpfung
(who)
Pancaro, Cosimo
Event
Veröffentlichung
(who)
European Central Bank (ECB)
(where)
Frankfurt a. M.
(when)
2013

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Pancaro, Cosimo
  • European Central Bank (ECB)

Time of origin

  • 2013

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