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Current Account Reversals and Currency Crises: Empirical Regularities

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Listed:
  • Mr. Gian M Milesi-Ferretti
  • Assaf Razin

Abstract

This paper studies large reductions in current account deficits and exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. Both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade, are found to trigger reversals and currency crises. The two types of events are, however, distinct; an exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversals there is no systematic evidence of a growth slowdown.

Suggested Citation

  • Mr. Gian M Milesi-Ferretti & Assaf Razin, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," IMF Working Papers 1998/089, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1998/089
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    More about this item

    Keywords

    WP; currency crisis; current account reversal; currency crash; terms of trade; current account deficit; growth; real exchange rate; depreciation vis-à-vis; currency depreciation; currency crisis episode; Current account; Current account deficits; Currency crises; Depreciation; Current account balance; Asia and Pacific; East Asia;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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