TY  - JOUR
AU  - Edwards,Sebastian
TI  - On Current Account Surpluses and the Correction of Global Imbalances
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12904
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12904
L1  - http://www.nber.org/papers/w12904.pdf
N1  - Author contact info:
Sebastian Edwards
UCLA Anderson Graduate School of Business
110 Westwood Plaza, Suite C508
Box 951481
Los Angeles, CA 90095-1481
Tel: 310/206-6797
Fax: 310/206-5825
E-Mail: sebastian.edwards@anderson.ucla.edu
AB  - In this paper I analyze the nature of external adjustments in current account surplus countries.  I ask whether a realignment of world growth rates -- with Japan and Europe growing faster, and the U.S. growing more slowly -- is likely to solve the current situation of global imbalances. The main findings may be summarized as follows: (a) There is an important asymmetry between current account deficits and surpluses. (b) Large surpluses exhibit little persistence through time. (c) Large and abrupt reductions in surpluses are a rare phenomenon. (d) A decline in GDP growth, relative to long term trend, of 1 percentage point results in an improvement in the current account balance -- higher surplus or lower deficit -- of one quarter of a percentage point of GDP.  Taken together, these results indicate that a realignment of global growth -- with Japan and the Euro Zone growing faster, and the U.S. moderating its growth -- would only make a modest contribution towards the resolution of global imbalances.  This means that, even if there is a realignment of global growth, the world is likely to need significant exchange rate movements.  This analysis also suggests that a reduction in China's (very) large surplus will be needed if global imbalances are to be resolved.
ER  -