Global Account Imbalances since the Global Financial Crisis: Determinants, Implications and Challenges for the Global Economy

Since the Global Financial Crisis (GFC), the large current account surpluses in some countries have become an important topic of discussion in international fora. In this paper, we empirically assess the factors that could potentially explain the persistence of global imbalances in selected advanced and emerging countries. We adopt a panel-regression approach on a sample covering 56 countries, allowing us to assess the medium-term determinants of current accounts. First, we perform benchmark estimations and break down our estimations between pre- and post- GFC samples using two different approaches. Second, we specify more comprehensive models in order to better understand current account dynamics. Our results show that the GFC did not imply any structural break in the determination of current accounts. Moreover, financial development, openness, and institutional variables appear as the main factors impacting current account dynamics through the effects that they have on investment and saving behaviors. Finally, we use our estimates to predict the equilibrium current accounts and compute the contribution of underlying factors. Despite some uncertainty around the estimates, our models are able to explain most of the observed current account configuration, showing only some excess surplus compared to equilibrium in the case of China and more recently Germany. In the case of the U.S., however, larger uncertainty ranges prevent us from precisely estimating equilibrium current account levels.