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

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  • W. Max Corden

Abstract

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 .

Suggested Citation

  • W. Max Corden, 2007. "Those Current Account Imbalances: A Sceptical View -super-1," The World Economy, Wiley Blackwell, vol. 30(3), pages 363-382, March.
  • Handle: RePEc:bla:worlde:v:30:y:2007:i:3:p:363-382
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    References listed on IDEAS

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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 Rogoff, 2007. "The Unsustainable U.S. Current Account Position Revisited," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376 National Bureau of Economic Research, Inc.
    3. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
    4. Corden, W. Max, 1994. "Economic Policy, Exchange Rates, and the International System," OUP Catalogue, Oxford University Press, number 9780198774099.
    5. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    6. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
    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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    Cited by:

    1. Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, pages 1-23.
    2. Bajo-Rubio, Oscar, 2012. "The balance-of-payments constraint on economic growth in a long-term perspective: Spain, 1850–2000," Explorations in Economic History, Elsevier, vol. 49(1), pages 105-117.
    3. Russell Jesse R., 2012. "Disequilibrium in the International Balance of Payments," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 18(1), pages 1-17, May.
    4. James Xiaohe Zhang, 2011. "RMB Appreciation or Fiscal Stimulus, and their Policy Implications," Chapters,in: China’s Economy in the Post-WTO Environment, chapter 9 Edward Elgar Publishing.
    5. repec:wsi:serxxx:v:62:y:2017:i:02:n:s0217590816500041 is not listed on IDEAS
    6. W. Max Corden, 2008. "The World Credit Crisis: Understanding It, and What To Do," Melbourne Institute Working Paper Series wp2008n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. Beretta, Silvio & Iannini, Giuseppe, 2007. "A US-EU Economic Block versus China? How Viable is it? A Note," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 409-420.

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