explaining the global pattern of current strongaccountstrong imbalances.pdf

Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 846 November 2005 Explaining the Global Pattern of Current Account Imbalances Joseph W. Gruber and Steven B. Kamin NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Recent IFDPs are available on the Web at /pubs/ifdp/. This paper can be downloaded without charge from Social Science Research Network electronic library at /. Explaining the Global Pattern of Current Account Imbalances Joseph W. Gruber and Steven B. Kamin* November 2005 Abstract: This paper assesses some of the explanations that have been put forward for the global pattern of current account imbalances that has emerged in recent years: in particular, the large U.S. current account deficit and the large surpluses of the Asian developing economies. Based on the approach developed by Chinn and Prasad (2003), we use data for 61 countries during 1982-2003 to estimate panel regression models for the ratio of the current account balance to GDP. We find that a model that includes as its explanatory variables the standard determinants of current accounts proposed in the literature–per capita income, relative growth rates, the fiscal balance, demographic variables, and economic openness–can account for neither the large U.S. deficit nor large Asian surpluses of the 1997-2003 period. However, when we include a variable representing financial cr