Determinants and dynamics of current account reversals: An empirical analysis

R. Liesenfeld, G. Valle Moura, J.F. Richard

    Research output: Contribution to JournalArticleAcademicpeer-review

    Abstract

    We use panel probit models with unobserved heterogeneity, state dependence and serially correlated errors in order to analyse the determinants and the dynamics of current account reversals for a panel of developing and emerging countries. The likelihood-based inference of these models requires high-dimensional integration for which we use efficient importance sampling. Our results suggest that current account balance, terms of trades, foreign reserves and concessional debt are important determinants of current account reversal. Furthermore, we find strong evidence for serial dependence in the occurrence of reversals. While the likelihood criterion suggest that state dependence and serially correlated errors are essentially observationally equivalent, measures of predictive performance provide support for the hypothesis that the serial dependence is mainly due to serially correlated country-specific shocks related to local political or macroeconomic events. © Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2010.
    Original languageEnglish
    Pages (from-to)486-517
    JournalOxford Bulletin of Economics and Statistics
    Volume72
    DOIs
    Publication statusPublished - 2010

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