Are Australia's Current Account Deficits Excessive?

August 1, 1996

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C. John McDermott, and Paul Cashin. Are Australia's Current Account Deficits Excessive?, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper compares the evolution of the Australian current account balance over the period 1954–94 against an optimal current account derived from a consumption-smoothing model. The findings indicate that the Australian current account was not used to smooth consumption optimally in the period prior to the relaxation of capital controls in the early 1980s. The results also suggest that in the period since the mid-1980s Australia’s current account deficits have become excessive, and that the increase in national saving required to satisfy its external borrowing constraint is about 2 to 4 percent of GDP.

Subject: Balance of payments, Consumption, Current account, Current account balance, Current account deficits, External position, Foreign liabilities, National accounts

Keywords: Actual current account deficit, Consumption, Consumption tilting, Current account, Current account balance, Current account deficit, Current account deficits, Current account measure, Current account path, Current account position, Current account sustainability, Excess current account deficit, Foreign liabilities, Long-run current account balance, NFL-to-GDP ratio Australia, Open economy, Optimal current account, Optimal current account deficit, Real interest rate, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/085
Stock No:

WPIEA0851996
ISBN:

9781451850703
ISSN:

1018-5941

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