Revisiting external imbalances: Insights from sectoral accounts
Cian Allen ()
Economic Papers from Trinity College Dublin, Economics Department
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
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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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