Are the Balance of Payments Deficits in the Baltic Countries Sustainable?. CEPS Working Documents No. 207, 1 July 2004

Drud Hansen, Jorgen and Hansen, Morten (2004) Are the Balance of Payments Deficits in the Baltic Countries Sustainable?. CEPS Working Documents No. 207, 1 July 2004. [Working Paper]

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Abstract

For almost a decade all three Baltic countries have witnessed substantial deficits on the current accounts of the balance of payments. This paper discusses whether this situation should be a matter of concern. Recent literature on the sustainability of balance of payments deficits is reviewed and put into a Baltic context. The main conclusion is that the recurrent large deficits in the Baltic countries pose a risk for the fixed exchange-rate policies until the countries adopt the euro. In the longer term, large deficits will influence the time path of convergence of living standards between the Baltic countries and the EU as a whole.

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