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Does the Current Account Matter?

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  • Sebastian Edwards
Abstract
The purpose of this paper is to investigate in detail the behavior of the current account in emerging economies, and in particular its role if any in financial crises. Models of current account behavior are reviewed, and a dynamic model of current account sustainability is developed. The empirical analysis is based on a massive data set that covers over 120 countries during more than 25 years. Important controversies related to the current account including the extent to which current account deficits help predict currency crises are also analyzed. Throughout the paper I am interested in analyzing whether there is evidence supporting the idea that there are costs involved in running 'very large' deficits. Moreover, I investigate the nature of these potential costs, including whether they are particularly high in the presence of other type of imbalances.

Suggested Citation

  • Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8275
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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