Can you tell me why people are so focused on the current account deficit figure? If the underlying worry is the potential destabilising effects of hot money and short term borrowing then why doesnt' everyone simply focus on metrics that track those figures? Is it because CAD is a more readily available/computable figure or is it because of some other reasons drive why CAD is so important to focus on? Any comments/insight you got on this would be highly appreciated.
First, I understand the reader's point. If you care about the CAD because of financing concerns, why not concentrate on these financing concerns rather than the CAD. This makes sense, but you'd still need something to gauge the financing with. Say, if Turkey attracted USD 10bn of portfolio flows during the past year, is this too little and too large? Compared to what? That's why you also need the CAD. In fact, that's why we call the both of them (and reserve accumulation, which is the difference between the two) the Balance of Payments, or BOP. And of course not all items under the CAD headline number are created equally. For example, if I am forecasting the CAD, I would spend much more time with exports and imports; it is pretty straightforward the to project the only other major item under the current account, tourism revenues, and the other items are way too small to make a difference.