Balance-of-Payments constrained growth dynamics: An empirical investigation

Abstract

• The dynamics of the BOP constrained growth model are analyzed. • Future growth is forecasted by means of a long-run component consistent with external equilibrium and a cyclical term. • Whenever the cyclical term, driven by current account deficits, is substantial, it conditions future growth rates. • Our findings are in sharp contrast with the predictions of forward-looking rational expectations models.