Chapter

Current Account Reversals

Muge Adalet and Barry Eichengreen

in G7 Current Account Imbalances

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226107264
Published online February 2013 | e-ISBN: 9780226107288 | DOI: http://dx.doi.org/10.7208/chicago/9780226107288.003.0007
Current Account Reversals

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This chapter evaluates the frequency, magnitude, and effects of current account reversals in the gold standard era (1880–1914), the interwar period (1919–1939), Bretton Woods (1945–1970), and the post-Bretton Woods float (1972–1997). The results confirm that the gold standard era and the years since 1970 differed strikingly from one another: reversals were smaller, less frequent, and less disruptive in the gold standard period. It also shows that the reversals were relatively costly when a large current account deficit had been allowed to emerge and the real exchange rate was allowed to become significantly overvalued in the preceding period. The growth of the current account deficit in the 1880s led from a combination of domestic economic and political factors. Reversals were both less common and smaller in the Bretton Woods and pre-World War I gold standard eras.

Keywords: current account reversals; gold standard era; interwar period; Bretton Woods; current account deficit; exchange rate

Chapter.  16712 words.  Illustrated.

Subjects: Financial Markets

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