Working Paper: NBER ID: w26226
Authors: Menzie D. Chinn; Hiro Ito
Abstract: Global current account imbalances have reappeared, although the extent and distribution of these imbalances are noticeably different from those experienced in the middle of the last decade. What does that recurrence mean for our understanding of the origin and nature of such imbalances? Will imbalances persist over time? Informed by empirical estimates of the determinants of current account imbalances encompassing the period after the global recession, we find that – as before – the observable manifestations of the factors driving the global saving glut have limited explanatory power for the time series variation in imbalances. Fiscal factors determine imbalances, and have accounted for a noticeable share of the recent variation in imbalances, including in the U.S. and Germany. For advanced economies, the financial component of the current account has been playing an increasing role to determine the movements of the account. Examining observable policy actions, it is clear that net official flows have been associated with some share of imbalances, although tracing out the motivations for intervention is difficult. Looking forward, it is clear that policy can influence global imbalances, although some component of the U.S. deficit will likely remain given the U.S. role in generating safe assets.
Keywords: No keywords provided
JEL Codes: F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal factors (E62) | Current account imbalances (F32) |
| Fiscal deficit (H68) | Current account deficit (F32) |
| Youth dependency ratio (J13) | Current account balances (F32) |
| Elderly dependency ratio (J14) | Current account balances (F32) |
| Net official flows (F32) | Current account balances (F32) |