OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
Hide / Show Abstract
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Are Global Imbalances Sustainable?

Post-Crisis Scenarios You or your institution have access to this content

Authors:
Luiz de Mello, Pier Carlo Padoan1
Author Affiliations
  • 1: OECD, France

Publication Date
21 July 2010
Bibliographic information
No.:
795
Pages
33
DOI
10.1787/5kmbjh9p4jtc-en

Hide / Show Abstract

This paper assesses the sustainability of global imbalances by testing for the presence of unit roots in the current account positions (measured in relation to GDP) of the United States, China, Japan, Germany and the oil-exporting countries using a methodology that allows for structural breaks in levels and trends. We find that the external positions of these major countries/regions are stationary around structural breaks, which define episodes of current account reversals. On the basis of an event analysis of past reversals, it appears that structural breaks are associated with shifts in the fiscal stance, exchange rate parities and potential output growth, a finding that underscores the scope for macroeconomic and structural policies to ensure the sustainability of external positions while avoiding potentially disruptive reversals. These findings have implications for long-term capital flows after the crisis.
Keywords:
current account sustainability, global imbalances, capital flows
JEL Classification:
  • F30: International Economics / International Finance / General
  • J08: Labor and Demographic Economics / General / Labor Economics Policies
  • O40: Economic Development, Technological Change, and Growth / Economic Growth and Aggregate Productivity / General