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Current Account Imbalances; Can Structural Policies Make a Difference?

  • Anna Ivanova

The discussion of global and regional imbalances has put the spotlight on the possible link between current accounts and structural policies. Drawing on standard empirical current account models, the paper finds that the commonly recommended structural factors cannot explain the widening of imbalances prior to the 2008 - 09 crisis. That said, structural factors do help explain some part of long-standing cross-country differences in the current account levels. In particular, countries with stricter credit market regulation, higher taxes on businesses, lower minimum wage (in particular,in slow growing economies) and generous unemployment benefits tend to have higher current account balances than others.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/61.

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Length: 35
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/61
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  1. Shang-Jin Wei & Jiandong Ju, 2008. "Current Account Adjustment: Some New Theory and Evidence," 2008 Meeting Papers 851, Society for Economic Dynamics.
  2. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 273-335.
  3. Stephane Guibaud & Keyu Jin & Nicolas Coeurdacier, 2011. "Credit Constraints and Growth in a Global Economy," 2011 Meeting Papers 1040, Society for Economic Dynamics.
  4. Lukas Vogel, 2011. "Structural reforms and external rebalancing in the euro area: a model-based analysis," European Economy - Economic Papers 443, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  5. Mike Kennedy & Torsten Sløk, 2005. "Are structural reforms the answer to global current account imbalances?," OECD Economic Studies, OECD Publishing, vol. 2005(2), pages 47-73.
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