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On Current Account Surpluses and the Correction of Global Imbalances


  • Sebastián Edwards


In this paper I analyze the nature of external adjustments in current account surplus countries. I ask whether a realignment of world growth rates -- with Japan and Europe growing faster, and the U.S. growing more slowly -- is likely to solve the current situation of global imbalances. The main findings may be summarized as follows: (a) there is an important asymmetry between current account deficits and surpluses. (b) Large surpluses exhibit little persistence through time. (c) Large and abrupt reductions in surpluses are a rare phenomenon. (d) A decline in GDP growth, relative to long term trend, of 1 percentage point results in an improvement in the current account balance -- higher surplus or lower deficit -- of one quarter of a percentage point of GDP. Taken together, these results indicate that a realignment of global growth would only make a modest contribution towards the resolution of global imbalances. This means that, even if there is a realignment of global growth, the world is likely to need significant exchange rate movements. This analysis also suggests that a reduction in China's (very) large surplus will be needed if global imbalances are to be resolved.

Suggested Citation

  • Sebastián Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," Working Papers Central Bank of Chile 440, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:440

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    References listed on IDEAS

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    Cited by:

    1. Blaise Gnimassoun & Valérie Mignon, 2015. "Persistence of Current-account Disequilibria and Real Exchange-rate Misalignments," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 137-159, February.
    2. Adnan Velic, 2017. "Current Account Imbalances, Real Exchange Rates, and Nominal Exchange Rate Variability," Trinity Economics Papers tep1417, Trinity College Dublin, Department of Economics.
    3. Subir Lall & Roberto Cardarelli & Selim Elekdag, 2009. "Financial Stress, Downturns, and Recoveries," IMF Working Papers 09/100, International Monetary Fund.
    4. Rabah Arezki & Fuad Hasanov, 2013. "Global Imbalances and Petrodollars," The World Economy, Wiley Blackwell, vol. 36(2), pages 213-232, February.
    5. Thomas, P Mini, 2015. "Relationship between services trade, economic growth and external stabilisation in India: An empirical investigation," Working Papers 340, Institute for Social and Economic Change, Bangalore.
    6. Riccardo Fiorentini & Guido Montani, 2012. "The New Global Political Economy," Books, Edward Elgar Publishing, number 14443.
    7. Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2009. "Global Imbalances: The Role of Emerging Asia," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 716-733, September.

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