Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 13/2006

Those Current Account Imbalances: A Sceptical View

by

W. Max Corden

Date: August 2006

Abstract: 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.

 

Downloads: PDF format (207K)