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Rethinking balance-of-payments constraints in a globalized world

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Author Info
Dabrowski, Marek

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Abstract

This paper confronts the traditional balance-of-payments (BoP) analytical framework (with its dominant focus on the size of a given country’s current account imbalance and its external liabilities) with the contemporary realities of highly integrated international capital markets and cross-country capital mobility. Some key implicit assumptions of the traditional framework like those of a fixed residence of capital owners and home country bias are challenged and an alternative set of assumptions is offered. These reflect the unrestricted character of private capital flows (with no “home country bias” and fixed domicile) determined mostly by the expected rate of return. As a result, the importance of BoP constraints (in their “orthodox” interpretation) diminishes and they disappear completely with respect to individual member states within a highly integrated monetary union. This does not mean, however, immunization from other kinds of macroeconomic risks.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11962.

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Date of creation: Jul 2006
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Handle: RePEc:pra:mprapa:11962

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Related research
Keywords: balance of payments; international investment position; current account; monetary union; globalization; global imbalances;

Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

References listed on IDEAS
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  1. Martin Feldstein & Charles Horioka, 1980. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Martin Feldstein, 2005. "Monetary Policy in a Changing International Environment: The Role of Global Capital Flows," NBER Working Papers 11856, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jérôme Hericourt & Mathilde Maurel, 2000. "The Feldstein-Horioka Puzzle Revisited: An “European-Regional” Perspective," William Davidson Institute Working Papers Series wp763, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  4. Alan M. Taylor, 1994. "Domestic Saving and International Capital Flows Reconsidered," NBER Working Papers 4892, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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