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 CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0330.
Length: 23 Pages
Date of creation: 2006
Date of revision:
current account; monetary union; globalization; global imbalances;
Other versions of this item:
- Dabrowski, Marek, 2006. "Rethinking balance-of-payments constraints in a globalized world," MPRA Paper 11962, University Library of Munich, Germany.
- 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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