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Business & Economics

Current Account (IM) Balances, Real Convergence and Growth Expectations in Central and Eastern Europe. A Fresh Perspective
Dumitru Miron, Ileana Alexe, Cristina Flavia Tatomir

ABSTRACT. In this paper the effect of two driving forces, real convergence and economic growth expectations, on the evolution of the current account behaviour in ten European Union countries from Central and Eastern Europe over 1995-2011 is explored. A comparison of findings with the period up to the financial crisis is provided. The results of the paper support the previous research in this area. However, we find evidence in favour of the "stages of development" hypothesis for the current account balances only before the onset of the crisis. By comparison, current paper responds to economic growth expectations both, during 1995-2007 and 1995 - 2011, the effect on the latter period being double. The economic growth forecasts have negatively influenced the current account balances, pointing to the fact that countries with optimistic growth forecasts tend to run larger current account deficits and lower growth expectations caused by the crisis lead to the higher current account balances.

KEYWORDS: current account imbalances, real convergence, stages of development, growth expectations, Central and Eastern Europe.

JEL classification: F32, F43, E20, 011, 052.