For a more general survey of the relevance of the current account for economic policymaking, see Malcolm Knight and Fabio Scacciavillani, “Current Accounts: What is Their Relevance for Economic Policymaking?” IMF Working Paper, No. 98/71, 1998.
See the discussion in Gian Maria Milesi-Ferretti and Assaf Razin, “Current Account Sustainability,” Princeton Studies in International Finance, Vol. 81, October 1996. A number of models used in investment banks follow this type of approach, albeit in a more sophisticated fashion.
Pioneering work in this area was done by Atish Ghosh, on industrial countries in “International Capital Mobility Amongst the Major Industrialised Countries: Too Little or Too Much?” Economic Journal, Vol. 105, pp. 10728, 1995; and on developing countries by Atish R. Ghosh and Jonathan D. Ostry in “The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach,” World Bank Economic Review, Vol. 9, No. 2, 1995. For an application to ASEAN countries, see Jonathan Ostry, “Current Account Imbalances in ASEAN Countries: Are They a Problem?” IMF Working Paper 97/51, 1997 (also in Macroeconomic Issues Facing Asean Countries, ed. by John Hicklin, David Robinson, and Anoop Singh, IMF, 1997); to Australia, see Paul Cashin and C. John McDermott, “Are Australia’s Current Account Deficits Excessive?” Economic Record, Vol. 79, 1998a; to France, see Pierre-Richard Agénor and others, “Consumption Smoothing and the Current Account: Evidence for France, 197096,” Journal of International Money and Finance, Vol. 18, pp. 112, February 1999; to India, see Tim Callen and Paul Cashin, “Assessing External Sustainability in India,” IMF Working Paper 99/181, 1999 (and forthcoming in Journal of International Trade and Economic Development); to Nigeria, see Olumuyiwa Adedeji, “The Excessiveness and Sustainability of the Nigerian Current Account,” forthcoming IMF Working Paper, 2001.
Atish R. Ghosh and Jonathan D. Ostry, “Macroeconomic Uncertainty, Precautionary Saving, and the Current Account,” Journal of Monetary Economics, Vol. 40, pp. 12139, 1997.
Paul Cashin and C. John McDermott, “International Capital Flows and National Creditworthiness: Do the Fundamental Things Apply as Time Goes By?” IMF Working Paper 98/172, 1998b (and forthcoming in Australian Economic Papers), provide a breakdown between trend and consumption-smoothing components of the current account in Australia.
See, for example, Gian Maria Milesi-Ferretti and Assaf Razin, “Current Account Sustainability,” Princeton Studies in International Finance, Vol. 81, October 1996; Gian Maria Milesi-Ferretti and Assaf Razin, “Current Account Deficits and Capital Flows in East Asia and Latin America: Are the Early Nineties Different from the Early Eighties?” in Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, ed. by Takatoshi Ito and Anne O. Krueger, 1999 (Chicago: University of Chicago Press for NBER); and Donal McGettigan, “Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union,” IMF Occasional Paper No. 189, 2000. Some of the studies cited earlier (Callen and Cashin, 1999; Ostry, 1997) also use indicators in addition to the consumption-smoothing model to evaluate current account imbalances.
Indeed, the current account plays an important role as a warning signal for currency crises in some of these models. See, for example, Andrew Berg and Catherine Pattillo, “Are Currency Crises Predictable? A Test,” IMF Staff Papers, Vol. 46, No. 2, 1999; and Gian Maria Milesi-Ferretti and Assaf Razin, “Current Account Reversals and Currency Crises: Empirical Regularities,” in Currency Crises, ed. by Paul Krugman (Chicago: University of Chicago Press for NBER, 2000).
For related work examining the dynamics of the trade balance in response to different types of shocks, see Eswar Prasad and Jeffrey Gable, “International Evidence on the Determinants of Trade Dynamics,” IMF Staff Papers, Vol. 45, No. 3, 1998; and Eswar Prasad, “International Trade and the Business Cycle,” The Economic Journal, October 1999.
Guy Debelle and Hamid Faruqee, “What Determines the Current Account? A Cross-Sectional and Panel Approach,” IMF Working Paper 96/58, 1996; Menzie Chinn and Eswar Prasad, “Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration,” IMF Working Paper 00/46, 2000. For related work on estimating equilibrium measures of current accounts and exchange rates, see Peter Isard and Hamid Faruqee, eds. “Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach,” IMF Occasional Paper No. 167, 1998.
César Calderón, Alberto Chong, and Luisa Zanforlin, “Are African Current Account Deficits Different? Stylized Facts, Transitory Shocks, and Decomposition Analysis,” IMF Working Paper 01/4, 2001; Paul Cashin and C. John Dermott, “Terms of Trade Shocks and the Current Account,” IMF Working Paper 98/177, 1998; and Jörg Decressin and Piti Disyatat, “Capital Markets and External Current Accounts: What to Expect from the Euro,” IMF Working Paper 00/154, 2000.
Gian Maria Milesi-Ferretti and Assaf Razin, “Sharp Reductions in Current Account Deficits: An Empirical Analysis,” European Economic Review Papers and Proceedings, 1998; and Gian Maria Milesi-Ferretti and Assaf Razin, “Current Account Reversals and Currency Crises: Empirical Regularities,” in Currency Crises, ed. by Paul Krugman (Chicago: University of Chicago Press for NBER, 2000).
On the former topic, see Jorge E. Roldós, “On Gradual Disinflation, the Real Exchange Rate, and the Current Account,” Journal of International Money and Finance, Vol. 16, February 1997, pp. 3754; on the latter, see Axel Schimmelpfennig, “Pension Reform, Private Saving, and the Current Account in a Small Open Economy,” IMF Working Paper 00/171, 2000.
See Philip R. Lane and Gian Maria Milesi-Ferretti, “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries,” IMF Working Paper 99/115, 1999 (and forthcoming in Journal of International Economics); Philip R. Lane and Gian Maria Milesi-Ferretti, “Long-Term Capital Movements,” paper presented at the NBER sixteenth Annual Conference on Macroeconomics, Cambridge, Massachusetts, April 2001.
Richard A. Musgrave, The Theory of Public Finance (New York: McGraw-Hill, 1959).
Wallace E. Oates, “An Essay on Fiscal Federalism,” Journal of Economic Literature, September 1999, pp. 1120-49. See also Musgrave (1959).
Teresa Ter-Minassian, ed., Fiscal Federalism in Theory and Practice (Washington: International Monetary Fund, 1997); Ehtisham Ahmad, ed., Financing Decentralized Expenditures: An International Comparison of Grants (Cheltenham, U.K.: Edward Elgar, 1997); and a series of studies, cited below, which were presented in a conference organized by the IMF in November 2000. For a recent application of fiscal federalism issues to the Caribbean countries, see Carri Zeljko Bogetic and Janet Stotsky, Fiscal Federalism and Its Relevance in the Caribbean (Kingston, Jamaica: University of the West Indies, forthcoming).
Hamid R. Davoodi and Heng-fu Zou, “Fiscal Decentralization and Economic Growth: A Cross-Country Analysis,” Journal of Urban Economics, March 1998, pp. 24457; Danyang Xie, Heng-fu Zou, and Hamid R. Davoodi, “Fiscal Decentralization and Economic Growth in the United States,” Journal of Urban Economics, March 1999, pp. 22839; Luiz de Mello, “Fiscal Decentralization and Intergovernmental Fiscal Relations: A Cross-Country Analysis,” World Development, February 2000, pp. 36580; Luis de Mello, “Fiscal Federalism and Government Size in Transition Economies: The Case of Moldova,” IMF Working Paper 99/176, 1999 (also forthcoming in Journal of International Development); John Anderson and Hendrik Van den Berg, “Fiscal Decentralization and Government Size: An International Test for the Leviathan Accounting for Unmeasured Economic Activity,” International Tax and Public Finance, May 1998, pp. 17186.
Ter-Minassian (1997); Vito Tanzi, “On Fiscal Federalism: Issues to Worry About,” 2000.
Luiz de Mello, “Can Fiscal Decentralization Strengthen Social Capital?” IMF Working Paper 00/129, 2000; Luiz de Mello and Matias Barenstein, “Fiscal Decentralization and Governance: A Cross-Country Analysis,” forthcoming IMF Working Paper; Daniel Treisman, “Decentralization and the Quality of Government,” 2000.
Ugo Panizza, “On the Determinants of Fiscal Centralization: Theory and Evidence,” Journal of Public Economics, October 1999, pp. 97139.
Jose Alfonso and Luiz de Mello, “Brazil: An Evolving Federation”.
Jorge Martinez-Vazquez, Era Dabla-Norris, and John Norregaard, “Making Decentralization Work: The Case of Russia, Ukraine, and Kazakhstan”; and Ehtisham Ahmad, Li Keping, and Thomas Richardson, “Recentralization in China?”.
Ehtisham Ahmad and Ali Mansoor, “Indonesia: Managing Decentralization,” 2000.
See also Luis de Mello, “Intergovernmental Fiscal Relations: Coordination Failures and Fiscal Outcomes,” Public Budgeting and Finance, Spring 1999, pp. 325.
Reza Baqir, “Districting and Government Overspending,” forthcoming IMF Working Paper.
Michael Keen and Christos Kotsogiannis, “Does Federalism Lead to Excessively High Tax Rates?” forthcoming in American Economic Review. See also Michael Keen, “Vertical Tax Externalities in the Theory of Fiscal Federalism,” IMF Staff Papers, Vol. 45, No. 3, 1998, pp. 454–85.