current strongaccountstrong imbalances some key issues for the major.pdfVIP

Current Account Imbalances: Some Key Issues for the Major Industrialized Economies Jocelyn Jacob, International Department • In recent years, the resurgence of sizable current account here have been renewed academic and pub- imbalances in the major economies, particularly the U.S. lic discussions in recent years about growing deficit, has led to renewed academic and public discuss- T external imbalances among major econo- ions about their sustainability. mies, particularly the U.S. current account • By themselves, current account imbalances (deficits or deficit. In that context, one of the main objectives of surpluses) are neither good nor bad. They simply reflect this article is to show that current account balances are the outcome of relative cyclical and structural factors in simply the outcome of various relative structural and domestic and foreign economies. cyclical forces between trading partners. The first sec- • Over the second half of the 1990s, the much faster increase tion of this article is a review of the underlying deter- in U.S. productivity compared with that of other major minants of the changes in current account positions economies has been an important factor shaping the among the three largest industrial economies (the evolution of current account balances in major economies. United States, Japan, and the euro area) 1 since the More recently, however, a key element behind the further mid-1990s. widening in the U.S. current account deficit has been the loosening in the U.S. fiscal stance. In the secon