(Why) Should Current Account Balances Be Reduced?

Blanchard, Olivier Jean; Milesi-Ferretti, Gian Maria

(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.

Version

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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Creative Commons Attribution-Noncommercial-Share Alike 3.0

http://creativecommons.org/licenses/by-nc-sa/3.0/

Persistent DSpace Link

http://hdl.handle.net/1721.1/78848

DOI of Published Version

https://doi.org/10.1057/imfer.2012.2