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Are Australia's Current Account Deficits Excessive?

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  • Mr. C. John McDermott
  • Mr. Paul Cashin

Abstract

This paper compares the evolution of the Australian current account balance over the period 1954–94 against an optimal current account derived from a consumption-smoothing model. The findings indicate that the Australian current account was not used to smooth consumption optimally in the period prior to the relaxation of capital controls in the early 1980s. The results also suggest that in the period since the mid-1980s Australia’s current account deficits have become excessive, and that the increase in national saving required to satisfy its external borrowing constraint is about 2 to 4 percent of GDP.

Suggested Citation

  • Mr. C. John McDermott & Mr. Paul Cashin, 1996. "Are Australia's Current Account Deficits Excessive?," IMF Working Papers 1996/085, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/085
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    More about this item

    Keywords

    WP; current account deficit; real interest rate; current account sustainability; NFL-to-GDP ratio Australia; optimal current account; current account position; current account measure; current account path; open economy; actual current account deficit; long-run current account balance; excess current account deficit; consumption tilting; optimal current account deficit; Current account; Current account deficits; Current account balance; Consumption; Foreign liabilities;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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