The Significance of the Current Account: Implications of European Financial Integration

Lazaros Molho

No 1990/030, IMF Working Papers from International Monetary Fund

Abstract: This paper reasseses the significance of persistent current imbalances as they become easier to finance in the process of European integration. After highlighting some limitations of simple saving-investment guidelines for policies toward the current account, the paper shows that an economy’s current account position may be an indicator of its attitude toward risk. Externalities in the incidence of risk could warrant government concern over current imbalances, even if they are caused by privately motivated investment and saving decisions. Such externalities may arise from credit markets’ conventional perceptions about country risk and from existing deposit insurance arrangements.

Keywords: WP; current account deficit; saving-investment approach; gold standard; private sector; saving-investment framework; investment-saving gap; deficit country; saving-investment rule; Current account; Current account deficits; Consumption; Current account imbalances; Southern Europe; Europe (search for similar items in EconPapers)
Pages: 44
Date: 1990-04-01
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