Sustainability of Persistent Current Account Deficits
Gian Maria Milesi-Ferrett, Assaf Razin
NBER Working Paper No. 5467 (Also Reprint No. r2100)
This paper puts forward a notion of current account sustainability that explicitly takes into account willingness to pay and willingness to lend in addition to intertemporal solvency. It argues that this notion of sustainability provides a better framework for understanding the variety of country experiences with protracted current account imbalances. Based on this notion, we identify a number of operational indicators related to the structure of the economy, the economic policy stance, and political economy factors. We use these sustainability indicators to evaluate the experience of a number of countries that ran persistent current account imbalances, and derive policy implications consistent with our notion of sustainability.
Published: International Journal of Finance Economics, vol. 1, no. 3, pp. 161-181, July 1996.