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Sebastian Edwards

deficit reversals, have the current account adjustments tended to be lasting, or have current account balances deteriorated shortly after the reversal episode? Historically, have major current account deficit reversals been associated with sudden stops of capital inflows? To what extent have current account deficit reversals been associated with balance of payments and/or currency crises? Have current account deficit reversals been associated with banking crises? Have current account reversals tended to take place within the context of IMF programs? Have

Mr. Martin D Kaufman, Mr. Steven T Phillips, Mr. Rodrigo O. Valdes, and Nicolas Eyzaguirre

robust in determining the likelihood of current account reversal episodes—a rapid and large retrenchment of a current account—it is the initial size of the current account deficit in EMs. And fast adjustments of the current account are almost always painful in terms of the real economy. Moreover, once the drag from the debt overhang is worked out and the recovery takes hold in advanced economies, EMs may have to cope with a swift increase in foreign interest rates (as policy rates are returned to more normal levels, and as the private sectors of advanced economies

Mr. Alberto Behar and Mr. Armand P Fouejieu
After the decline in oil prices, many oil exporters face the need to improve their external balances. Special characteristics of oil exporters make the exchange rate an ineffective instrument for this purpose and give fiscal policy a sizeable role. These conclusions are supported by regression analysis of the determinants of the current account balance and of the trade balance. The results show little or no relationship with the exchange rate and, especially for the less diversified oil exporters (including the Gulf Cooperation Council), a strong relationship with the fiscal balance or government spending.
International Monetary Fund. Research Dept.


The global economic recovery is progressing better than expected, but the speed of recovery varies, as outlined in the April 2010 World Economic Outlook. Some countries, notably in Asia, are off to a strong start, but growth in others is constrained by lasting damage to the financial sector and to household balance sheets. The challenge for policymakers is to ensure a smooth transition of demand, while maintaining supports that promote growth and employment. There is also a need to contain and reduce public debt and repair and reform the financial sector. This issue of the WEO also explores two other key challenges in the wake of the Great Recession: how to spur job creation in the face of likely high and persistent unemployment in advanced economies, and how countries that previously ran large current account surpluses or deficits can promote growth by rebalancing external and domestic demand.

Bertrand Gruss, Mr. Malhar S Nabar, and Mr. Marcos Poplawski Ribeiro

in the 1970s and the 2010s Figure 4. Change in Real Income per Capita in EMDEs Relative to the United States over Decades Figure 5. Correlation between Country-Specific External Conditions Variables and Global Variables over Time Figure 6. Average Contribution to GDP per Capita Growth Figure 7. Contribution of Other Common Factors to GDP per Capita Growth and Selected Global Variables Figure 8. Growth Episodes in EMDEs, 1970–2015 Figure 9. Persistent Acceleration Episodes by Region Figure 10. Reversal Episodes by Region Figure 11. Cumulative Growth

Bertrand Gruss, Mr. Malhar S Nabar, and Mr. Marcos Poplawski Ribeiro

collapse); and (iv) are not followed by a growth reversal that starts within three years of the end of the acceleration episode, or a banking crisis (as identified by Laeven and Valencia 2013 ) that starts three years before or after the end of the acceleration episode. A growth reversal episode is defined as an interval spanning five years during which: (i) there is a discrete drop in the trend growth rate such that it is at least 2 percentage points lower than during the preceding five-year interval; and (ii) the level of real GDP per capita declines such that its

Bertrand Gruss, Mr. Malhar S Nabar, and Mr. Marcos Poplawski Ribeiro
External conditions have been found to influence the tendency of emerging market and developing economies to experience episodes of growth accelerations and reversals. In this paper we study the role of domestic policies and other structural attributes in amplifying or mitigating the effect that shifts in external conditions have on growth patterns in emerging market and developing economies over the past five decades. We find that these economies can enhance the growth impulse from external conditions by strengthening their institutional frameworks and adopting a policy mix that protects trade integration; permits exchange rate flexibility; and ensures that vulnerabilities stemming from high current account deficits and external debt, as well as high public debt, are contained.
Bertrand Gruss, Mr. Malhar S Nabar, and Mr. Marcos Poplawski Ribeiro
This paper investigates how country-specific external demand, external financial conditions, and terms of trade affect medium-term growth in Emerging Market and Developing Economies and the occurrence of growth accelerations and reversals. The importance of country-specific external conditions for medium-term growth has increased over time—in particular, the growing contribution of external financial conditions accounts for one-third of the increase in average income per capita growth between 1995–2004 and 2005–14. Stronger external demand and financial conditions significantly increase the probability of growth accelerations, while a strengthening of any of the three conditions significantly decreases the probability of reversals.