ECB paper explores current account reversals

European Central Bank at night

Triggers of current account reversals - sharp external adjustments that lead to a sustained current account improvement - differ between exchange rate regimes, according to a working paper published yesterday by the ECB.

The paper - Current account reversals in industrial countries: Does the exchange rate regime matter?, by Cosimo Pancaro - examines 43 episodes of current account reversals in 22 industrial economies between 1970 and 2007.

Pancaro finds that larger deficits and output gaps are

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