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Current Account Imbalances Coming Back

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  • Joseph E. Gagnon

    ()
    (Peterson Institute for International Economics)

Abstract

This paper finds statistically robust and economically important effects of fiscal policy, external financial policy, net foreign assets, and oil prices on current account balances. The statistical model builds upon and improves previous explanations of current account balances in the academic literature. A key advance is that the model captures the effect of external financial policies, including exchange rate policies, through data on net official financial flows. Based on current and expected future policies, current account imbalances in major G-20 economies are likely to widen much more in the next five years than projected by the International Monetary Fund (IMF). This paper concludes with a discussion of appropriate policies to prevent widening imbalances.

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File URL: http://www.piie.com/publications/wp/wp11-1.pdf
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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP11-1.

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Date of creation: Jan 2011
Date of revision:
Handle: RePEc:iie:wpaper:wp11-1

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Related research

Keywords: exchange rate; G-20; official financial flows; sterilized intervention;

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Cited by:
  1. Evans, Martin, 2014. "External Balances, Trade Flows and Financial Conditions," MPRA Paper 55644, University Library of Munich, Germany.
  2. Tamim Bayoumi & Christian Saborowski, 2012. "Accounting for Reserves," IMF Working Papers 12/302, International Monetary Fund.
  3. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2011. "External Adjustment and the Global Crisis," IMF Working Papers 11/197, International Monetary Fund.
  4. Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: Financial openness matters," Journal of International Economics, Elsevier, vol. 91(2), pages 235-251.
  5. Joseph Gagnon, 2012. "Global imbalances and foreign asset expansion by developing-economy central banks," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 168-185 Bank for International Settlements.
  6. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
  7. Steven Phillips & Luis Catão & Luca Antonio Ricci & Rudolfs Bems & Mitali Das & Julian di Giovanni & D. Filiz Unsal & Marola Castillo & Jungjin Lee & Jair Rodriguez & Mauricio Vargas, 2013. "The External Balance Assessment (EBA) Methodology," IMF Working Papers 13/272, International Monetary Fund.
  8. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
    [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
    ," MPRA Paper 51332, University Library of Munich, Germany.
  9. Kumhof, Michael & Laxton, Douglas, 2013. "Fiscal deficits and current account deficits," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2062-2082.

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