Have the Implications of Twin Deficits Changed?: Sudden Stops over Decades |
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Authors: | Levan Efremidze Akinori Tomohara |
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Institution: | (1) UCLA Anderson Forecast, The Anderson School of Management, University of California, Los Angeles, CA 90095-1481, USA;(2) Dept of Int’l Politics, Economics, and Communication, Aoyama Gakuin University, 4-4-25, Shibuya, Shibuya-ku Tokyo, 150-8366, Japan;(3) School of Politics & Economics, Claremont Graduate University, 150 E. 10th St., Claremont, CA 91711, USA |
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Abstract: | Over the last three decades, many developing countries have experienced severe currency crises. This paper presents a study
of how the importance of twin deficits (budget and current account deficits) has changed in predicting sudden stops from the
1970s to the mid-2000s using data from 42 developing countries. Results show that the explanatory power of twin deficits has
declined over the decades but that deficits of these kinds remain important factors for predicting sudden stops. Our results
imply that a large current account deficit is an issue even when it is not accompanied by a budget deficit. This finding contradicts
Lawson’s Doctrine. |
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Keywords: | |
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