(Why) Should Current Account Balances Be Reduced?
Olivier J. Blanchard
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)
Gian Maria Milesi-Ferretti
International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
March 1, 2011
This note discusses two complex issues. First, why might a country want to reduce its current account deficit or surplus? And second, why might the international community ask for more? In general, there are both domestic and multilateral reasons for countries to reduce current account deficits and surpluses. We identify three instances in which the case for reducing imbalances rests on multilateral considerations: the cross-border effects of sudden stops, "unfair competitive advantage," and worries about global demand if part of the world economy is in a liquidity trap. We briefly discuss the implications of our analysis for the setting of "rules of the game" in a multilateral context.
Number of Pages in PDF File: 15
Keywords: global imbalances, current account, exchange rates
JEL Classification: E21, E22, F32, F33, F36, F41working papers series
Date posted: March 5, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.438 seconds