Serie De Documentos De Trabajo the Political Economy of Current Account Reversals: an Empirical Study

نویسنده

  • Juan Manuel Jauregui
چکیده

This paper addresses empirically whether institutions and politics play a role in the genesis of current account reversals. It also identifies which political factors matter and the importance of their influence. In a binary outcome model, it finds that (1) institutional checks –when interacting with the ratio of the net international reserves to GDP-, (2) election frauds and intimidation to candidates, and (3) executive control over the legislature, increase the probability of experiencing a reversal. It also shows how including political economy variables in the model helps to identify the impact of the economic variables. Moreover, the quantitative relevance of the political factors is high. Their impact is of the same order of magnitude than the current account balance and the level of external debt. Also, a policy recommendation can be extracted: when facing unsustainability of the current account, careful consideration must be given to events that could deteriorate the political climate. Policy measures that may improve some economic variables, but could trigger political violence can be very risky.

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تاریخ انتشار 2006