Revisiting external imbalances: Insights from sectoral accounts
Cian Allen
Economic Papers from Trinity College Dublin, Economics Department
Abstract:
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 the non-financial corporation and the government sectors 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: E21 F31 F32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-05
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Citations: View citations in EconPapers (7)
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https://www.tcd.ie/Economics/TEP/2019/TEP0519.pdf
Related works:
Journal Article: 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:tcd:tcduee:tep0519
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