Large Current Account Deficits and Neglected Vulnerabilities

Using a sample covering 50 advanced and emerging economies over 1990–2017, it is found that large current account deficits are followed by systematic negative surprises in economic growth. This regularity verified both the case of economies. In addition, reversed significantly faster than what forecasters anticipate low asset returns drops sentiment. The findings robust to changes specification do not seem be explained efficient learning dynamics. evidence indicates analysts unable incorporate information transmitted has implications for understanding past events design macro-prudential policies.