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Christian-Albrechts-Universität zu Kiel

Institut für Volkswirtschaftslehre - Department of Economics
Economics Working Papers

Economics Working Papers: Abstract 2009-04




Roman Liesenfeld, Guilherme V. Moura, Jean-François Richard




Determinants and Dynamics of Current Account Reversals: An Empirical Analysis
Abstract We use panel probit models with unobserved heterogeneity, state-dependence and serially correlated errors in order to analyze the determinants and the dynamics of current-account reversals for a panel of developing and emerging countries. The likelihood-based inference of these models requires high-dimensional integration for which we use Efficient Importance Sampling (EIS). Our results suggest that current account balance, terms of trades, foreign reserves and concessional debt are important determinants of current-account reversal. Furthermore, we find strong evidence for serial dependence in the occurrence of reversals. While the likelihood criterion suggest that state-dependence and serially correlated errors are essentially observationally equivalent, measures of predictive performance provide support for the hypothesis that the serial dependence is mainly due to serially correlated country-specific shocks related to local political or macroeconomic events.

Keywords: Panel data, Dynamic discrete choice, Importance Sampling, Monte Carlo integration, State dependence, Spillover effects

JEL classification: C15, C23, C25, F32




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