Is poor household saving the cause of New Zealand's high current account deficit?
AbstractThe current account deficit in the balance of payments has frequently surfaced in public policy debate, with many commentators asserting that low household saving is a major cause of these deficits. Yet, in standard macroeconomic theory, both the current account balance and household saving are endogenous, so one can not cause the other. For any country in any given period, they may be positively or negatively correlated, or uncorrelated, depending on what causative factors were dominant at the time. Moreover, the current account balance is identical to the difference between national saving and investment. There is no general reason to expect it to move in lock step with the level of household saving. Consistently, pooled cross-country and time-series data indicate that simple correlations between the two variables are randomly scattered around zero. In the absence of proper analysis, unsubstantiated assertions about the role of household saving mislead public debate and invite the adoption of welfare-reducing policies, which may not even improve the balance of payments. The case for diverting attention from policies to lift economic growth to policies to improve the balance of payments seems to be not so much unproven as unexamined.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by New Zealand Institute of Economic Research in its series NZIER Working Paper with number 2008/1.
Length: 12 pages
Date of creation: 28 Jan 2008
Date of revision:
balance of payments; household savings rate; deficit; New Zealand;
Other versions of this item:
- Bryce Wilkinson & Trinh Le, 2008. "Is poor household saving the cause of New Zealand's high current account deficit?," Macroeconomics Working Papers 22024, East Asian Bureau of Economic Research.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sebastian Edwards, 2006. "External Imbalances in an Advanced, Commodity-Exporting Country: The Case of New Zealand," NBER Working Papers 12620, National Bureau of Economic Research, Inc.
- Alan Bollard, 2005. "Imbalances in the New Zealand Economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, December.
- Anella Munro & Rishab Sethi, 2007. "Understanding the New Zealand current account: A structural approach," Reserve Bank of New Zealand Discussion Paper Series DP2007/10, Reserve Bank of New Zealand.
- Grant M. Scobie & Katherine Henderson, 2009. "Saving Rates of New Zealanders: A Net Wealth Approach," Treasury Working Paper Series 09/04, New Zealand Treasury.
- Anthony Makin & Wei Zhang & Grant Scobie, 2008.
"The Contribution of Foreign Borrowing to the New Zealand Economy,"
Treasury Working Paper Series
08/03, New Zealand Treasury.
- Anthony Makin & Wei Zhang & Grant Scobie, 2009. "The contribution of foreign borrowing to the New Zealand economy," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(3), pages 263-278.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sarah Spring).
If references are entirely missing, you can add them using this form.