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Do Governments Drive Global Trade Imbalances?

Joseph Gagnon

No WP17-15, Working Paper Series from Peterson Institute for International Economics

Abstract: This paper examines the extent to which government policies are responsible for the pattern of current account (trade) imbalances and, by implication, the extent to which such policies might be used to achieve the G-20 goal of reducing imbalances. Fiscal balances and foreign exchange intervention are the most important observable factors behind differences in current account balances across countries and over time. This finding is robust to alternative equation specifications, estimation techniques, and sample selections. The empirical results in this paper strongly suggest that G-20 countries (and others) have the necessary tools to achieve their stated goal of narrowing current account imbalances.

Keywords: current account balance; fiscal balance; foreign exchange intervention (search for similar items in EconPapers)
JEL-codes: F32 F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-opm
Date: 2017-12
Note: Alternative regressions based on overall current account balance are provided in an addendum available at: https://piie.com/publications/working-papers/do-governments-drive-global-trade-imbalances
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