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A Sceptical View of Australia's Current Account and Debt Problem

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  • J. D. Pitchford
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    Abstract

    This article puts forward the view that there are considerable benefits to be gained from foreign borrowing and that policy actions of a macro nature should be diverted towards internal balance.In Section 2 a brief history of the evolution of approaches to the current account is set out. Recent theories imply that the current account indicates the optimal amount of foreign borrowing both by firms and households, at least with zero fiscal deficits. The present conventional Australian approach to current account issues (Section 3) would seem to be based on theories which were relevant in an era of pegged exchange rates.In Section 4 it is suggested not only that the current account should not be a target of macroeconomic policy, but that any microeconomic policy directed at reducing it should be justified by the existence of externalities in the borrowing/debt process. Copyright 1989 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-8462.1989.tb00319.x
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    Bibliographic Info

    Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.

    Volume (Year): 22 (1989)
    Issue (Month): 2 ()
    Pages: 5-14

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    Handle: RePEc:bla:ausecr:v:22:y:1989:i:2:p:5-14

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    Cited by:
    1. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2007. "Current Account Deficits: The Australian Debate," Working Papers Central Bank of Chile 450, Central Bank of Chile.
    2. H. W. Arndt, 2000. "Capital mobility. An overview," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 233-243.
    3. Jordan Shan & Fiona Sun, 1998. "Domestic Saving and Foreign Investment in Australia: A Granger Causality Test," International Economic Journal, Taylor & Francis Journals, vol. 12(4), pages 79-87.
    4. Philip Bodman, 1997. "The Australian Trade Balance and Current Account: a Time Series Perspective," International Economic Journal, Taylor & Francis Journals, vol. 11(2), pages 39-57.
    5. Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, vol. 102(3), pages 1-23, May.
    6. H. W. Arndt, 2000. "Capital mobility. An overview," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 233-243.
    7. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2007. "Current Account Deficits: The Australian Debate," RBA Research Discussion Papers rdp2007-02, Reserve Bank of Australia.
    8. David Gruen & Glenn Stevens, 2000. "Australian Macroeconomic Performances and Policies in the 1990s," RBA Annual Conference Volume, in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.
    9. Charles Bean, 2000. "The Australian Economic 'Miracle': A View from the North," RBA Annual Conference Volume, in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.

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