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Historic imbalances and great debates: do the economists see it coming?

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  • Suzanne Berger

Abstract

Today?s debates over the international flows of capital, goods, and services center around the puzzle of privilege?the possibility for some countries to enjoy ?an excess return on assets relative to liabilities allowing them to sustain larger trade deficits in equilibrium?--- as Christopher Meissner and Alan Taylor define it in their contribution to this conference (p.5). Why do foreigners, at apparently such low rates of return, continue to invest so heavily in the United States? Why do American investments abroad apparently earn higher returns than others derive operating in the same countries? How sustainable is a state of affairs in which the US current account deficit is about 7 percent of GDP with a resulting debt that over time will place a large share of the country?s capital stock in foreign hands? Absent any agreement on the basic mechanisms and relationships underlying this situation, and even any agreement on the existence or not of a serious problem for public policy, scenarios of readjustment diverge widely.

Suggested Citation

  • Suzanne Berger, 2006. "Historic imbalances and great debates: do the economists see it coming?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51.
    • Handle: RePEc:fip:fedbcp:y:2006:n:51:x:8
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    Keywords

    International trade; Balance of trade;

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