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Are Global Imbalances Sustainable? Post Crisis Scenarios

Author

Listed:
  • Luiz de Mello
  • Pier Carlo Padoan

    (Organisation de Coopération et de Développement Économiques (OCDE))

Abstract

This paper assesses the sustainability of global imbalances by testing for the presence of unit roots in the current account positions (measured in relation to GDP) of the United States, China, Japan, Germany and the oil-exporting countries using a methodology that allows for structural breaks in levels and trends. We find that the external positions of these major countries/regions are stationary around structural breaks, which define episodes of current account reversals. On the basis of an event analysis of past reversals, it appears that structural breaks are associated with shifts in the fiscal stance, exchange rate parities and potential output growth, a finding that underscores the scope for macroeconomic and structural policies to ensure the sustainability of external positions while avoiding potentially disruptive reversals. These findings have implications for long-term capital flows after the crisis.

Suggested Citation

  • Luiz de Mello & Pier Carlo Padoan, 2011. "Are Global Imbalances Sustainable? Post Crisis Scenarios," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
    • Handle: RePEc:pia:review:v:2:y:2011:i:1:n:3
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    Cited by:

    1. Joseph E. Gagnon, 2011. "Current Account Imbalances Coming Back," Working Paper Series WP11-1, Peterson Institute for International Economics.
    2. Mayer, Jörg, 2012. "Global rebalancing: Effects on trade and employment," Journal of Asian Economics, Elsevier, vol. 23(6), pages 627-642.
    3. Christophe Andre & Mehmet Balcilar & Tsangyao Chang & Luis Alberiko Gil-Alana & Rangan Gupta, 2018. "Current account sustainability in G7 and BRICS: Evidence from a long-memory model with structural breaks," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(6), pages 638-654, August.
    4. Vito Tanzi, 2011. "The Return to Fiscal Rectitude After the Recent Escapade," Rivista di Politica Economica, SIPI Spa, issue 3, pages 253-277, JULY-SEPT.

    More about this item

    Keywords

    global imbalances; current account sustainability; capital flows;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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