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Are Australia's Current Account Deficits Excessive?

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  • PAUL CASHIN
  • C. JOHN McDERMOTT

Abstract

This paper compares the evolution of the Australian current account balance over the period 1954‐94 against an optimal current account derived from a consumption‐smoothing model. The findings indicate that the Australian current account was not used to smooth consumption optimally in the period prior to the relaxation of capital controls in the early 1980s. The results also suggest that in the period since the mid‐1980s Australia's current account deficits have become excessive, and that the increase in net national saving required to satisfy its external borrowing constraint is about 2 to 4 per cent of GDP.

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  • PAUL CASHIN & C. JOHN McDERMOTT, 1998. "Are Australia's Current Account Deficits Excessive?," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 346-361, December.
    • Handle: RePEc:bla:ecorec:v:74:y:1998:i:227:p:346-361
    DOI: 10.1111/j.1475-4932.1998.tb01930.x
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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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