We wish to thank Claudio Borio, Tony Richards, Steve Kamin, Camilo Tovar and William White for useful comments on an earlier draft, and Pat McGuire for helpful discussions. Michela Scatigna provided excellent research assistance.
Current Account Adjustment and Capital Flows*
Article first published online: 19 OCT 2007
Review of International Economics
Volume 15, Issue 5, pages 989–1013, November 2007
How to Cite
Debelle, G. and Galati, G. (2007), Current Account Adjustment and Capital Flows. Review of International Economics, 15: 989–1013. doi: 10.1111/j.1467-9396.2007.00705.x
- Issue published online: 19 OCT 2007
- Article first published online: 19 OCT 2007
We examine episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizable growth slowdown and a large exchange rate depreciation. There was no discernible change in the nature of capital flows just prior to an adjustment. Hence, adjustments may be responding to the resolution of domestic imbalances rather than being an exogenous event. We show that global developments triggered the adjustment, possibly by triggering the unwinding of the domestic imbalances. Most of the ex post adjustment of the financial account was in private sector flows, primarily by foreign investors.