External adjustment |
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Authors: | Email author" target="_blank">Maurico?ObstfeldEmail author |
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Institution: | (1) Department of Economics, University of California, Berkeley, 549 Evans Hill 3880, 94720-3880 Berkeley, California, USA |
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Abstract: | Gross stocks of foreign assets have increased rapidly relative to national outputs since 1990, and the short-run capital gains
and losses on those assets can amount to significant fractions of GDP. These fluctuations in asset values render the national
income and product account measure of the current account balance increasingly inadequate as a summary of the change in a
country's net foreign assets. Nonetheless, unusually large current account imbalances, especially deficits, should remain
high on policymakers' list of concerns, even, for the richer and less credit-constrained countries. Extreme imbalances signal
the need for large and perhaps abrupt real exchange rate changes in the future, changes that might have undesired political
and financial consequences given the incompleteness of domestic and international asset markets. Furthermore, of the two sources
of the change in net foreign assets—the current account and the capital gain on the net foreign asset position—the former
is better understood and more amenable to policy influence. Systematic government attempts to manipulate international asset
values in order to change the net foreign asset position could have a destabilizing effect on market expectations. JEL no.
F21, F32, F36, F41 |
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Keywords: | Current account external adjustment balance of payments foreign asset position international diversification capital flows to developing countries |
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