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Global Current Account Imbalances: American Fiscal Policy versus East Asian Savings *
Author(s) -
Chinn Menzie D.,
Ito Hiro
Publication year - 2008
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2008.00741.x
Subject(s) - current account , economics , openness to experience , macroeconomics , global imbalances , fiscal policy , balance (ability) , government (linguistics) , government budget , current (fluid) , deficit spending , east asia , monetary economics , international economics , exchange rate , public finance , debt , china , political science , medicine , psychology , social psychology , linguistics , philosophy , law , electrical engineering , physical medicine and rehabilitation , engineering
We consider the origins of global current account imbalances. We first discuss how the expansion of the US current account deficit and the decrease in global real interest rates can be reconciled with the widespread view that American expansionary fiscal policy is partly the source of current trends. We then investigate empirically the medium‐term determinants of the current account using a model that controls for factors related to institutional development. In addition to the conventional macroeconomic factors, we examine a series of environmental factors, including the degree of financial openness and the extent of legal development. We find that for industrial countries, the government budget balance is an important determinant of the current account balance; the budget balance coefficient is 0.10 to 0.49 depending on model specifications. These varying estimates lead us to conclude that fiscal factors might be as important as excess savings arising from East Asia.