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The Effects of Financial Crises on the Current Account Balance

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posted on 28.06.2013, 00:00 by Yu Chen
This study investigates the effects of banking crises on the current account, using a panel data set of eighty countries over the 1980-2001 period. I adopt a dynamic regression approach and derive impulse response functions that estimate the detailed dynamic responses of the Current-Account-Balance-to-GDP ratio to a banking crisis. I find that banking crises produce current account effects that are substantial and vary over time, which suggests that, by omitting the dynamics, the cross-sectional regressions of most of the literature can be misleading. In particular, my estimates suggest that a banking crisis is followed by an improvement of the current account balance that is sizable and statistically significant. This effect is shown to be temporary, however, lasting for a few years before it dies out in the long run. These results are robust to a number of different specifications. This study also discusses a few interesting extensions related to currency crises and twin crises.

History

Advisor

Karras, George

Department

Economics

Degree Grantor

University of Illinois at Chicago

Degree Level

Doctoral

Committee Member

Officer, Lawrence Stokes, Houston Lee, Jin Man Pieper, Paul

Submitted date

2013-05

Language

en

Issue date

28/06/2013

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