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Those Current Account Imbalances: A Sceptical View

  • W. Max Corden

    (Department of Economics, The University of Melbourne)

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    The international current account imbalance, where the United States has a vast deficit and several countries, notably Japan, China, Germany and the oil exporters have corresponding surpluses, is usually seen as a problem. 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 several 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 world wide aggregate demand problem, essentially caused by the high net savings of the surplus countries.

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    Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2006n13.

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    Length: 27 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:iae:iaewps:wp2006n13
    Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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    1. Obstfeld, Maurice & Rogoff, Kenneth S, 2005. "The Unsustainable US Current Account Position Revisited," Center for International and Development Economics Research, Working Paper Series qt4f63x50j, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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