Current Account Deficits in Industrial Countries
Current Account Deficits in Industrial Countries
The Bigger They Are, the Harder They Fall?
This chapter investigates the episodes of current account adjustment in industrial countries. The data support the claims that the size of the current account deficit and the extent to which it is financing consumption matter for adjustment. Larger deficits take longer to resolve and are linked with relatively slower income growth during recovery. There is no evidence that the growth in the fiscal balance influences gross domestic product (GDP) growth relative to long-run average. There is a strong inverse correlation between the extent of exchange rate adjustment and the slowdown in GDP growth. Financing does not significantly matter for the adjustment process, indicating that markets are efficient at intermediating funds. The status of the dollar as the reserve currency has crucial implications for adjustment. Deficits driven by investment growth are more benign in terms of exchange rate adjustment than deficits driven by consumption or fiscal spending.
Keywords: current account adjustment, industrial countries, current account deficit, financing, income growth, fiscal balance, gross domestic product, exchange rate
Chicago Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
Please, subscribe or login to access full text content.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.
