(Why) Should Current Account Balances Be Reduced?

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blanchard milesi-feretti march 2011.pdf

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This is the FPV, but I sent a note to Katharine with a couple of questions that maybe we can accept this version.
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Author(s)
Blanchard, Olivier Jean
•
Milesi-Ferretti, Gian Maria
Date Issued
April 2012
Journal
IMF Economic Review
Publisher
Palgrave Macmillan
Citation
Blanchard, Olivier, and Gian Maria Milesi-Ferretti. “(Why) Should Current Account Balances Be Reduced?” IMF Economic Review 60.1 (2012): 139–150.
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Author's final manuscript
Abstract
The purpose of this note is to discuss two complex issues. First, why might a country want to reduce its current account deficit or surplus? And second, why might the international community ask for more? We argue that, in many cases, current account balances reflect underlying domestic distortions. It is then in the interest of the country to remove those distortions and, in the process, reduce imbalances. We then discuss cases where spillover effects, either from deficits or surpluses, suggest a direct role for multilateral surveillance. This process can play two potentially useful roles: first, as a discussion of the differences in assessments; second, as a potentially useful commitment device for countries to implement some of the required but politically unpalatable fiscal or structural adjustments.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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DOI of Published Version
https://doi.org/10.1057/imfer.2012.2
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