External Imbalances and Policy Constraint in the 1990s

Abstract

What is the policy significance, if any, of a nation’s balance of payments on current account? While hardly a novel question, the chapters in this volume are the response to its being asked once more in the context of developments in the world economy during the 1980s. The large and persistent American current account deficits together with the associated surpluses, especially of Japan, were a striking feature of the decade. At the start of the 1990s it remained unclear whether the apparent reduction in these imbalances reflected the operation of fundamental adjustment mechanisms or of cyclical factors. Among other industrial countries Britain entered the new decade having registered substantial current account deficits continuously since 1987. In marked contrast to earlier epochs, such imbalances were being financed without drama by an increasingly integrated global capital market.