Revisiting external imbalances: Insights from sectoral accounts
Cian Allen ()
Journal of International Money and Finance, 2019, vol. 96, issue C, 67-101
This paper revisits the period of substantial widening of external imbalances in advanced economies in the run-up to the global financial crisis and their adjustment since then. We take a granular look at these imbalances through the lens of their domestic counterpart: the net financial balance of the household sector, the government, non-financial corporations, and financial corporations. Our findings challenge the often-claimed view that the household sector lies behind most of the dynamics of the current account. In fact, we show that it is non-financial corporations and the government that account for the bulk of: (i) the co-movement with the standard set of fundamental covariates of the current account; (ii) the external adjustment and expenditure reduction in the aftermath of the global financial crisis; and (iii) the diverging dynamics during large and persistent current account imbalances. These results emphasize that analyzing domestic sectoral balances can lead to a better empirical and theoretical understanding of global imbalances.
Keywords: Current account; External adjustment; Sectoral balance; Flow of funds (search for similar items in EconPapers)
JEL-codes: F31 F32 E21 (search for similar items in EconPapers)
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Working Paper: Revisiting external imbalances: Insights from sectoral accounts (2019)
Working Paper: Revisiting External Imbalances: Insights from Sectoral Accounts (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:96:y:2019:i:c:p:67-101
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