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Current Account Imbalances after Bretton Woods

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  • Gylfi Zoega

    (University of Iceland
    Birkbeck College, University of London)

Abstract

This paper uses principal components analysis to describe the evolution of current account imbalances in a sample of 18 Organization for Economic Cooperation and Development countries from 1950 to 2020. The analysis shows, using only statistical methods, how two groups of countries formed in the 1980s. There is the current account surplus group including countries in Northern Europe, Japan and Switzerland and then the deficit group including the United States, the United Kingdom, Australia and several countries in Southern Europe. The divergence cannot be attributed to divergence in fiscal and monetary policy. Instead, there is some support for the thesis of Robert Aliber set out in another paper in this issue that capital flows between countries affect exchange rates, asset prices and the current account. The paper builds on two earlier papers in this journal by the same author, one showing how countries that have experienced a financial crisis tend to subsequently develop current account surpluses and the other showing how surpluses and deficits caused by capital flows affect the domestic real economy.

Suggested Citation

  • Gylfi Zoega, 2023. "Current Account Imbalances after Bretton Woods," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 51(1), pages 27-37, March.
    • Handle: RePEc:kap:atlecj:v:51:y:2023:i:1:d:10.1007_s11293-023-09760-1
    DOI: 10.1007/s11293-023-09760-1
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    References listed on IDEAS

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    1. Margarita Katsimi & Gylfi Zoega, 2016. "European Integration and the Feldstein–Horioka Puzzle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 834-852, December.
    2. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    3. Robert Z. Aliber, 2016. "A Lego Approach to International Monetary Reform," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(2), pages 139-157, June.
    4. Robert Z. Aliber, 2019. "Financial Crises and Bank Capital," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 1-11, March.
    5. Gudmundsson, Gudmundur S. & Zoega, Gylfi, 2014. "Age structure and the current account," Economics Letters, Elsevier, vol. 123(2), pages 183-186.
    6. Taylor, Alan M & Williamson, Jeffrey G, 1994. "Capital Flows to the New World as an Intergenerational Transfer," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 348-371, April.
    7. Gylfi Zoega, 2019. "Greece and the Western Financial Crisis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(2), pages 113-126, June.
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