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Those Current Account Imbalances: A Sceptical View -super-1

  • W. Max Corden
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    The international current account imbalances, where the United States has a vast deficit, and several countries, notably Japan, China, Germany and the oil exporters have corresponding surpluses, are usually seen as problems. The argument here is that current account imbalances simply indicate intertemporal trade - the exchange of goods and services for claims. There are likely to be gains from trade of that kind as from ordinary trade. What, then, are the problems? This paper considers five scenarios, notably one where net savings of the surplus countries decline so that the world real interest rate rises, and another where the US fiscal deficit is reduced, so that the world real interest rate falls and there could be a worldwide aggregate demand problem, essentially caused by the high net savings of the surplus countries. The paper reviews the reasons for the large surpluses in terms of savings and investment ratios (especially China) and also discusses the long-term problem for the United States. While four of the scenarios involve a decline in the dollar, they do not necessarily imply a sudden - and even 'disruptive'- dollar crisis. Copyright 2007 The Author Journal compilation 2007 Blackwell Publishing Ltd .

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    Article provided by Wiley Blackwell in its journal World Economy.

    Volume (Year): 30 (2007)
    Issue (Month): 3 (03)
    Pages: 363-382

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    Handle: RePEc:bla:worlde:v:30:y:2007:i:3:p:363-382
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    1. Richard N. Cooper, 2006. "Understanding global imbalances," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
    3. Maurice Obstfeld & Kenneth Rogoff, 2004. "The Unsustainable US Current Account Position Revisited," NBER Working Papers 10869, National Bureau of Economic Research, Inc.
    4. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
    5. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
    6. Corden, W. Max, 1994. "Economic Policy, Exchange Rates, and the International System," OUP Catalogue, Oxford University Press, number 9780198774099, July.
    7. Ben S. Bernanke, 2005. "The global saving glut and the U.S. current account deficit," Speech 77, Board of Governors of the Federal Reserve System (U.S.).
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