August 06, 2007
Almost Everything You Wanted to Know about G-7 Current Account Imbalances
A new book is out examining whether -- and if so how -- ongoing current account imbalances will be unwound.
The table of contents for G7 Current Account Imbalances: Sustainability and Adjustment is here:
Table of Contents:
Introduction, p. 1-8
Richard H. Clarida
I. Origins of G7 Current Account Imbalances
1. From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege, p. 11-55
Pierre-Olivier Gourinchas and Helene Rey
Comment: Jose De Gregorio, p. 56-66
2. A Global Perspective on External Positions, p. 67-98
Philip R. Lane and Gian Maria Milesi-Ferretti
Comment: Richard Portes, p. 99-102
3. Direct Investment, Rising Real Wages, and the Absorption of Excess Labor in the Periphery, p. 103-126
Michael P. Dooley, David Folkerts-Landau and Peter Garber
Comment: Shang-Jin Wei, p. 126-130
II. Empirical Studies of G7 Current Account and Exchange Rate Adjustment
4. Current Account Deficits in Industrial Countries: The Bigger They Are the Harder They Fall?, p. 133-162
Caroline Freund and Frank Warnock
Comment: Assaf Razin, p. 162-167
5. Are There Thresholds of Current Account Adjustment in the G7? p. 169-200
Richard H. Clarida, Manuela Goretti, and Mark P. Taylor
Comment: Robert E. Cumby, p. 201-203
6. Current Account Reversals: Always a Problem? p. 205-242
Muge Adalet and Barry Eichengreen
Comment: Frederic S. Mishkin, p. 242-245
7. Understanding the U.S. Trade Deficit: A Disaggregated Perspective, p. 247-278
Catherine L. Mann and Katharina Plueck
Comment: Peter B. Kenen, p. 278-281
8. Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency? p. 283-322
Menzie Chinn and Jeffrey A. Frankel
Comment: Edwin M. Truman, p. 322-335
III. Theoretical Perspectives on Current Account Sustainability and Adjustment
9. The Unsustainability U.S. Current Account Position Revisited, p. 339-366 Maurice Obstfeld and Kenneth Rogoff
Comment: Kristin J. Forbes, p. 367-375
10. Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing, p. 377-451
Hamid Faruqee, Douglas Laxton, Dirk Muir and Paolo A. Pesenti
Comment: Lars E. O. Svensson, p. 451-455
11. The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account, p. 457-492
Aart Kraay and Jaume Ventura
Comment: Joseph E. Gagnon, p. 492-495
And if this isn't enough, take a look at the current account sustainability website at UW-Madison. Some of these chapters are available there in working paper form, while others are available in the NBER Working Paper series.
Posted by Menzie Chinn at August 6, 2007 01:10 PMdigg this | reddit
Canada has had current account surpluses well before the run up of commodity prices. However the Canadian currency did not see any strength until commodities became popular.
Whether it is pricing the American or Canadian currency, the current account (or budget) status seems to have little impact. By the time it is accepted that certain deficits are unsustainable it will be too late and nothing left to lose anyway. Just like the dotcom market
Posted by: Jon at August 6, 2007 05:48 PM
Thank you very much for these links.
Posted by: vorpal at August 6, 2007 07:47 PM
I have noticed one interesting fact about the US trade deficit. We are the only major oil importer with a trade deficit. Germany, Japan, China and Korea all have trade surpluses. In fact, they have the largest surpluses in the world. The US is in a uniquely vulnerable position.
Posted by: vorpal at August 6, 2007 07:50 PM
I am reading the paper by Baily and Lawrence "Can America Compete or Does It Need a New Trade Paradigm?". It is pure trash. Do economists bother with error bars when doing linear regressions? These people have positions at Harvard? My undergraduate physics lab students do a better job than this.
Posted by: vorpal at August 7, 2007 12:38 PM
vorpal: I think you need to take into account the audience to which the document is addressed -- namely to a generalist audience. Having seen the technical presentation of these results, I know that both the shift coefficient and the slope coefficient are statistically significant at conventional levels.
If you read Baily et al. (1992) you can see all the standard errors you could ever want. Similarly for Lawrence, I suggest Can America Compete? (1983).
Yes, academic economists do take into account statistical uncertainty.
Posted by: Menzie Chinn at August 7, 2007 01:22 PM
I do not consider Baily to be an academic. At least, not now. He works for the Peterson Institute, a vested interest in certain policies, given that they receive money from corporations as a result of their 'research.'
The Institute has made important contributions to key trade policy decisions including ... the development of the WTO, NAFTA and other US free trade agreements (notably including Korea)
Gee, with such a strong pride in their contributions to 'free trade,' Baily would have to be a courageous guy to conclude that free trade wasn't the best policy for the US.
The Institute's annual budget is about $9 million. Support is provided by a wide range of charitable foundations, private corporations, and individuals and from earnings on the Institute’s publications and capital fund.
Capital Fund? Wow, must be nice. I bet their are a lot of academics out there who would like to have a 'capital fund.'
Menzie, you need to stop being so naive. Money corrupts, and it seems like there is lot to be had if you take Baily et al.'s position.
I think the moral compass of the economics industry, and it is an industry, needs reorientation.
Posted by: vorpal at August 8, 2007 01:45 PM
vorpal: Full disclosure: I am on the academic advisory committee of the Peterson IIE -- which means I pay my own way to go to meetings once a year to provide advice -- which they can take or leave as they desire.
Has it ever occurred to you that some people would decide to work at a particular institution because the institution's views coincide with their own? You may argue with people's views, but I don't think you can merely say they have those views because they are paid to do so. Indeed, while I have little positive to say about the views forwarded by some other think tanks in Washington (I'll leave you to guess which ones), I would not use as the default position the assumption that any particular analyst holds those views because they were paid to.
By the way, I've spent (cumulative) several years in Washington. I think I've seen enough to be wary.
Posted by: Menzie Chinn at August 10, 2007 09:24 PM