Financial Openness, Sudden Stops and Current Account Reversals

Abstract The paper analyzes the impact of massive capital flows and possible sudden stops on current account reversals. The aim of this paper is to consider the relationship between sudden stops and current account reversals in the eurozone and to explain the possibility of a balance-of-payment crisis within a monetary union. Peripheral eurozone countries experienced significant private-capital inflows from the core countries, followed by unambiguously massive outflows. Due to this, peripheral countries ran sustained current account deficits while core countries ran surpluses. At the end we analyze the evolution of current-account balances in the non-euro area EU countries and the peripheral euro-area countries, and we find out that current account deficits could be maintained over a longer period of time in the peripheral euro-area countries.

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Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops

10.3386/w10276 ◽

2004 ◽

Cited By ~ 57

Author(s):

Sebastian Edwards

Keyword(s):

Current Account ◽

Sudden Stops ◽

Current Account Imbalances ◽

Current Account Reversals ◽

Account Imbalances

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Current-Account Reversals in Developing Countries: The Role of Fundamentals

SSRN Electronic Journal ◽

10.2139/ssrn.139048 ◽

1998 ◽

Author(s):

Alberto Bagnai ◽

Stefano Manzocchi

Keyword(s):

Developing Countries ◽

Current Account ◽

Current Account Reversals

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Financial Liberalization and Current Account Developments in New EU Member States

Zagreb International Review of Economics and Business ◽

10.2478/zireb-2020-0009 ◽

2020 ◽

Vol 23 (1) ◽

pp. 141-154

Author(s):

Zdenka Obuljen Zoričić ◽

Boris Cota ◽

Nataša Erjavec

Keyword(s):

Exchange Rate ◽

Current Account ◽

Positive Sign ◽

Current Account Balance ◽

Financial Openness ◽

Member States ◽

Eu Member States ◽

New Eu Member States ◽

The Eu ◽

The Current Account

AbstractDue to negotiations on accession to the EU, the new EU member states from Central and Eastern Europe went through the financial opening. In the pre-crisis period followed by high liquidity in global markets, most of the EU new member states experienced rapid credit growth, which conditioned the appreciation of the exchange rate. External imbalances and vulnerabilities built up. Countries experienced deterioration in their current accounts. This paper investigates the link between financial openness, real effective exchange rate, financial crisis and current account balance within the Panel Auto-Regressive Distributed Lag (ARDL) framework for 11 new European Union members during the period from 1999 to 2016. The results obtained by the use of pooled mean group estimator (PMG) show that in the long run, financial openness has a significant negative impact on the current account balance. In the short run, crisis significantly influences the current account balance having a positive sign.

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