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

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  • J. D. Pitchford

Abstract

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.

Suggested Citation

  • J. D. Pitchford, 1989. "A Sceptical View of Australia's Current Account and Debt Problem," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(2), pages 5-14.
  • Handle: RePEc:bla:ausecr:v:22:y:1989:i:2:p:5-14
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    Cited by:

    1. Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, vol. 102(3), pages 1-23, May.
    2. Jordan Shan & Fiona Sun, 1998. "Domestic Saving and Foreign Investment in Australia: A Granger Causality Test," International Economic Journal, Taylor & Francis Journals, vol. 12(4), pages 79-87.
    3. Cashin, Paul & McDermott, C John, 1998. "Are Australia's Current Account Deficits Excessive?," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 346-361, December.
    4. H. W. Arndt, 2000. "Capital mobility. An overview," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 233-243.
    5. H. W. Arndt, 2000. "Capital mobility. An overview," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 233-243.
    6. Creina Day & Garth Day, 2010. "Taxes, Growth And The Current Account Tick-Curve Effect," Australian Economic Papers, Wiley Blackwell, vol. 49(1), pages 13-27, March.
    7. David Gruen & Amanda Sayegh, 2005. "The Evolution of Fiscal Policy in Australia," Oxford Review of Economic Policy, Oxford University Press, vol. 21(4), pages 618-635, Winter.
    8. Philip Bodman, 1997. "The Australian Trade Balance and Current Account: a Time Series Perspective," International Economic Journal, Taylor & Francis Journals, vol. 11(2), pages 39-57.
    9. Charles Bean, 2000. "The Australian Economic 'Miracle': A View from the North," RBA Annual Conference Volume,in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.
    10. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2008. "Current Account Deficits: Tha Australian Debate," Central Banking, Analysis, and Economic Policies Book Series,in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.), Current Account and External Financing, edition 1, volume 12, chapter 13, pages 491-535 Central Bank of Chile.
    11. David Gruen & Glenn Stevens, 2000. "Australian Macroeconomic Performances and Policies in the 1990s," RBA Annual Conference Volume,in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.

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