The Balance of Payments and Research inInternational Macroeconomics

This chapter argues that, in recent decades, research in international macroeconomics both responded to developments reported in countries’ balances of payments and also contributed to shaping these developments. It describes how the emerging dominance of dynamic open-economy macroeconomic models with explicit microeconomic foundations – the “intertemporal approach to the current account” – coincided with the substantial growth of international capital flows in the 1990s. It then reviews how theory responded to the crises amongst emerging market economies during the late 1990s and early 2000s, the global financial crisis of 2008–09, and the European debt crisis that began in 2010. The chapter concludes by reviewing the merits of the intertemporal approach, e.g. in influencing the normative assessment of observed current accounts, and argues for a disaggregate perspective on international capital flows and countries’ net international investment positions.