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A Sceptical View of Australia's Current Account and Debt Problem

  • J. D. Pitchford
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    This article puts forward the view that there are considerable benefits to be gained from foreign borrowing and that policy actions of a macro nature should be diverted towards internal balance.In Section 2 a brief history of the evolution of approaches to the current account is set out. Recent theories imply that the current account indicates the optimal amount of foreign borrowing both by firms and households, at least with zero fiscal deficits. The present conventional Australian approach to current account issues (Section 3) would seem to be based on theories which were relevant in an era of pegged exchange rates.In Section 4 it is suggested not only that the current account should not be a target of macroeconomic policy, but that any microeconomic policy directed at reducing it should be justified by the existence of externalities in the borrowing/debt process. Copyright 1989 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

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    Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.

    Volume (Year): 22 (1989)
    Issue (Month): 2 ()
    Pages: 5-14

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    Handle: RePEc:bla:ausecr:v:22:y:1989:i:2:p:5-14
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