Sudden stops and current account reversals: the euro area experience

Abstract The paper analyzes the impact of massive capital flows and possible sudden stops on current account reversals. The aim of this paper is to consider the relationship between sudden stops and current account reversals in the eurozone and to explain the possibility of a balance-of-payment crisis within a monetary union. Peripheral eurozone countries experienced significant private-capital inflows from the core countries, followed by unambiguously massive outflows. Due to this, peripheral countries ran sustained current account deficits while core countries ran surpluses. At the end we analyze the evolution of current-account balances in the non-euro area EU countries and the peripheral euro-area countries, and we find out that current account deficits could be maintained over a longer period of time in the peripheral euro-area countries.

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International Capital Flow Reversals (Sudden Stops)

Oxford Research Encyclopedia of Economics and Finance ◽

10.1093/acrefore/9780190625979.013.303 ◽

2019 ◽

Author(s):

Eduardo A. Cavallo

Keyword(s):

Current Account ◽

Capital Flows ◽

Financial Stability ◽

Foreign Currency ◽

The United States ◽

Capital Inflows ◽

Sudden Stops ◽

Lender Of Last Resort ◽

Current Account Deficits ◽

Combustible Materials

Sudden stops in capital flows are a form of financial whiplash that creates instability and crises in the affected economies. Sudden stops in net capital flows trigger current account reversals as countries that were borrowing on net from the rest of the world before the stop can no longer finance current account deficits. Sudden stops in gross capital flows are associated with financial instability, especially when the gross flows are dominated by volatile cross-border banking flows. Sudden stops in gross and net capital flows are episodes with an external trigger. This implies that the spark that ignites sudden stops originates outside the affected country: more specifically, in the supply of foreign financing that can halt for reasons that may be unrelated to the affected country’s domestic conditions. Yet a spark cannot generate a fire unless combustible materials are around. The literature has established that a set of domestic macroeconomic fundamentals are the combustible materials that make some countries more vulnerable than others. Higher fiscal deficits, larger current account deficits, and higher levels of foreign currency debts in the domestic financial system are manifestations of weak fundamentals that increase vulnerability. Those same factors increase the costs in terms of output losses when the crisis materializes. On the flip side, international reserves provide buffers that can help countries offset the risks. Holding foreign currency reserves hedges the fiscal position of the government providing it with more resources to respond to the crisis. While it may be impossible for countries to completely insulate themselves from the volatility of capital inflows, the choice of antidotes to prevent that volatility from forcing potentially costly external adjustments is in their own hands. The global financial architecture can be improved to support those efforts if countries could agree on and fund a more powerful international lender of last resort that resembles, at the global scale, the role of the Federal Reserve Bank in promoting financial stability in the United States.

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The Relationship between Current Account Deficits and Growth in Montenegro: ARDL Bounds Testing Approach

Journal of Central Banking Theory and Practice ◽

10.2478/jcbtp-2018-0020 ◽

2018 ◽

Vol 7 (3) ◽

pp. 5-24 ◽

Cited By ~ 1

Author(s):

Mustafa Özer ◽

Jovana Žugić ◽

Sonja Tomaš-Miskin

Keyword(s):

Growth Rate ◽

Current Account ◽

Current Account Deficit ◽

Gdp Growth ◽

Bounds Testing ◽

Current Account Deficits ◽

Long Run ◽

Gdp Growth Rate ◽

Short Run ◽

The Relationship

Abstract In this study, we investigate the relationship between current account deficits and growth in Montenegro by applying the bounds testing (ARDL) approach to co-integration for the period from the third quarter of 2011 to the last quarter of 2016. The bounds tests suggest that the variables of interest are bound together in the long run when growth is the dependent variable. The results also confirm a bidirectional long run and short run causal relationship between current account deficits and growth. The short run results mostly indicate a negative relationship between changes in the current account deficit GDP ratio and the GDP growth rate. This means that any increase of the value of independent variable (current account deficit GDP ratio) will result in decrease of the rate of GDP growth and vice versa. The long-run effect of the current account deficit to GDP ratio on GDP growth is positive. The constant (β0) is positive but also the (β1), meaning that with the increase of CAD GDP ratio of 1 measuring unit, the GDP growth rate would grow by 0,5459. This positive and tight correlation could be explained by overlapping structure of the constituents of CAD and the drivers of GDP growth (such as tourism, energy sector, agriculture etc.). The results offer new perspectives and insights for new policy aiming for sustainable economic growth of Montenegro.

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Economic Freedom and Private Capital Inflows in Selected South Asian Economies: A Dynamic Panel Data Evidence

South Asian Journal of Business and Management Cases ◽

10.1177/2277977918757365 ◽

2018 ◽

Vol 7 (1) ◽

pp. 41-52 ◽

Cited By ~ 1

Author(s):

Assad Ullah ◽

Muhammad Anees ◽

Zahid Ali ◽

Muhammad Ayub Khan

Keyword(s):

South Asian ◽

Economic Freedom ◽

Generalized Method Of Moments ◽

Negative Relationship ◽

Dynamic Panel Data ◽

Capital Inflows ◽

Private Capital ◽

Significant Positive Association ◽

Asian Economies ◽

The Relationship

Greater inflows of private capital are regarded to be very beneficial for the economic development. This study explores the relationship between economic freedom and private capital inflows in selected South Asian economies. The study comprises of six South Asian countries (India, Pakistan, Bangladesh, Sri Lanka, Nepal and Maldives). Data from 2002 to 2011 have been utilized, and the model is estimated by employing the system generalized method of moments (GMM) approach. Empirical results reveal a significant positive relationship between economic freedom and private capital inflows. The study transpired that economic freedom is potent determinant of private capital inflows. The results further established that growth in market size and official development assistance has significant positive association with private capital inflows, whereas exchange rate exhibits significant negative relationship with the inflows of private capital, thereby confirming the existing literature. Moreover, the relationship among inflation, natural resources and private capital inflows came out to be inconclusive. To lure more inflows of private capital towards the region, management authorities need to ensure high degree of economic freedom. Creation of investment-friendly climate, corruption-free environment, tax breaks in selective sectors, removing trade barriers, equity market liberalization and consistency in the government policies is advisable in this regard.

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Capital Controls, Sudden Stops and Current Account Reversals

10.3386/w11170 ◽

2005 ◽

Cited By ~ 50

Author(s):

Sebastian Edwards

Keyword(s):

Current Account ◽

Capital Controls ◽

Sudden Stops ◽

Current Account Reversals

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Republic of Armenia

IMF Staff Country Reports ◽

10.5089/9781513545141.002 ◽

2020 ◽

Vol 20 (176) ◽

Author(s):

Keyword(s):

Public Health ◽

Health Services ◽

Current Account ◽

Public Health Services ◽

Macroeconomic Conditions ◽

Financial Conditions ◽

Current Account Deficits ◽

Vulnerable People ◽

Near Term ◽

The Impact

The impact of the COVID-19 pandemic and the tightening of global financial conditions have disrupted the, until recently, favorable macroeconomic conditions. The near-term outlook has significantly weakened, with growth expected to decline to -1½ percent in 2020, and the fiscal and the current account deficits widening considerably this year. These projections are subject to more than the usual uncertainty. The authorities’ response has been timely and proactive, focusing on strengthening the provision of public health services, limiting domestic contagion, and introducing targeted economic relief measures aimed at assisting viable businesses and vulnerable people weather the crisis.

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1. Fundamental concepts

10.1093/he/9780199603794.003.0001 ◽

2013 ◽

Author(s):

Kevin Gray ◽

Susan Francis Gray

Keyword(s):

Human Rights ◽

Common Law ◽

Physical Reality ◽

England And Wales ◽

The Core ◽

The Subject ◽

Property Concepts ◽

Definition Of ◽

The Impact ◽

The Relationship

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter introduces a number of concepts that are fundamental to an understanding of the contemporary law of land in England and Wales. It discusses: definition of ‘land’ as physical reality; the notion of abstract ‘estates’ in land as the medium of ownership; the relationship between law and equity; the meaning of ‘property’ in land; the impact of human rights on property concepts; the ambivalence of common law perspectives on ‘land’; the statutory organisation of proprietary rights in land; and the underlying policy motivations that drive the contemporary law of land.

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‘We’re all in this together’: Commodified notions of connection, care and community in brand responses to COVID-19

European Journal of Cultural Studies ◽

10.1177/1367549420932294 ◽

2020 ◽

Vol 23 (6) ◽

pp. 1033-1037 ◽

Cited By ~ 2

Author(s):

Francesca Sobande

Keyword(s):

Consumer Culture ◽

Economic Disparities ◽

The Core ◽

Global Pandemic ◽

The World ◽

The Uk ◽

The Impact ◽

The Relationship ◽

Marketing Messages ◽

Structural Inequalities

The current COVID-19 (coronavirus) global pandemic has resulted in a wave of advertising and marketing approaches that are based on commodified concepts of human connection, care and community in a time of crisis. At the core of many brands’ marketing messages – whether these be supermarket advertising campaigns or celebrity self-branding – is the notion that ‘we’re all in this together’. While it is true that the impact of COVID-19 has affected the lives of many people around the world, not everyone is experiencing this crisis the same way, due to structural inequalities and intersecting oppressions. What is the relationship between COVID-19, capitalism and consumer culture? Who is the ‘we’ in the messages of ‘we’re all in this together’, and how might such messages mask distinct socio-economic disparities and enable institutions to evade accountability? This article examines sub-textual meanings connected to brand responses to COVID-19 in the UK context which rely on an amorphous imagined ‘we’ – and which ultimately may aid brands’ pursuit of productivity and profit, rather than symbolising support of and concern for people.

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The Silenced and Unsought Beneficiary: Investigating Epistemic Injustice in the Fiduciary

Business Ethics Quarterly ◽

10.1017/beq.2021.4 ◽

2021 ◽

pp. 1-23

Author(s):

Helen Mussell

Keyword(s):

Historical Perspective ◽

Ethical Issues ◽

Epistemic Injustice ◽

Original Formulation ◽

Legal Concept ◽

The Core ◽

Familial Context ◽

The Impact ◽

The Relationship ◽

Shed Light

This article uses philosopher Miranda Fricker’s work on epistemic injustice to shed light on the legal concept of the fiduciary, alongside demonstrating the wider contribution Fricker’s work can make to business ethics. Fiduciary, from the Latin fīdūcia, meaning “trust,” plays a fundamental role in all financial and business organisations: it acts as a moral safeguard of the relationship between trustee and beneficiary. The article focuses on the ethics of the fiduciary, but from a unique historical perspective, referring back to the original formulation of the fiduciary within a familial context to investigate presuppositions regarding agential capabilities, whilst also paying attention to the power mechanism embedded in the trustee–beneficiary relationship. Using Fricker’s theory of pre-emptive testimonial injustice, the analysis elucidates the impact of cumulative beneficiary silencing in contemporary contexts, and the article uncovers ethical issues of an epistemological kind at the core of the fiduciary—of epistemic injustice.

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