NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does the Current Account Still Matter?

Maurice Obstfeld

NBER Working Paper No. 17877
Issued in March 2012
NBER Program(s):   EFG   IFM   ITI

Do global current account imbalances still matter in a world of deep international financial markets where gross two-way financial flows often dwarf the net flows measured in the current account? Contrary to a complete markets or "consenting adults" view of the world, large current account imbalances, while very possibly warranted by fundamentals and welcome, can also signal elevated macroeconomic and financial stresses, as was arguably the case in the mid-2000s. Furthermore, the increasingly big valuation changes in countries' net international investment positions, while potentially important in risk allocation, cannot be relied upon systematically to offset the changes in national wealth implied by the current account. The same factors that dictate careful attention to global imbalances also imply, however, that data on gross international financial flows and positions are central to any assessment of financial stability risks. The balance sheet mismatches of leveraged entities provide the most direct indicators of potential instability, much more so than do global imbalances, though the imbalances may well be a symptom that deeper financial threats are gathering.

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Document Object Identifier (DOI): 10.3386/w17877

Published: Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, vol. 102(3), pages 1-23, May. citation courtesy of

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