Are Australia's Current Account Deficits Excessive?

28 Pages Posted: 15 Feb 2006

See all articles by Paul Anthony Cashin

Paul Anthony Cashin

International Monetary Fund (IMF)

C. John McDermott

Reserve Bank of New Zealand

Date Written: August 1996


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.

JEL Classification: F32, F41, F47

Suggested Citation

Cashin, Paul Anthony and McDermott, C. John, Are Australia's Current Account Deficits Excessive? (August 1996). IMF Working Paper No. 96/85, Available at SSRN:

Paul Anthony Cashin (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

C. John McDermott

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand

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