F32 - Current Account Adjustment; Short-term Capital MovementsReturn

Theoretically, external economic imbalance can be seen as an issue of chronic over-investment or under-saving of economies, and the process of correction may therefore be interpreted as a systematic movement of the national saving and investment rates towards their long-term equilibrium values. Such movement can be captured as a structural break in time series. We tried to empirically verify the long-term effects of the external imbalances adjustments on economic growth - namely whether structural breaks in the trend of relevant variables are related to the occurrence of structural breaks in GDP trend. The results suggest that the long-term adjustments of external economic imbalances are associated with a higher probability of negative GDP-trend breaks. However, no one-way causal effect was identified.