Probability of Current Account Reversals in Argentina and other Latin American Countries

Congreso; REUNION ANUAL; 2008

UNIVERSIDAD NACIONAL DE CORDOBA

In the framework of the solvency approach a Random Effects Probit Panel Model is run, estimating for 1979-2004 the impact of selected shocks on the probability of CARs in Latin American economies, as a measure of external vulnerability. Short-run debt, GDP growth, terms of trade shifts, and contagion, appear statistically significant. Simulations point out that shocks easily absorbed when isolated, drive the probability of reversals rapidly up above 40% when they occur simultaneously. Policy implications are that economic properties of safe scenarios may be quantitatively established, but also external solvency may vanish rapidly out of control of domestic authorities