Rethinking balance-of-payments constraints in a globalized world
AbstractThis 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 11962.
Date of creation: Jul 2006
Date of revision:
balance of payments; international investment position; current account; monetary union; globalization; global imbalances;
Other versions of this item:
- Marek Dabrowski, 2006. "Rethinking balance-of-payments constraints in a globalized world," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0330, CASE-Center for Social and Economic Research.
- 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
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