Document Type

Post-Print

Publication Date

12-2006

Subjects

Financial globalization, Capital movements, Financial integration, Economic stability, Monetary policy

Abstract

We critically assess several of the key assertions underlying the global saving glut hypothesis. First, we investigate whether the behavior of the U.S. current account behavior is anomalous in light of previous industrial country experience. Second, we determine whether East Asian current account balances are predictable using standard macroeconomic variables, augmented with institutional factors. Finally, we investigate whether higher levels of financial development in key East Asian economies would result in smaller current account surpluses. We find that a one percentage-point increase in the budget balance would increase the current account balance by 0.10 to 0.49 percentage-points for industrialized countries, and that the U.S. current account performance over the last four years is borderline anomalous. While more developed financial markets would lead to smaller current account balances for countries with highly developed legal systems and open financial markets, for key East Asian countries, greater financial development would cause higher saving. Asian current account surpluses seem to be driven by depressed investment, not excess saving.

Description

This is the author’s version of a work that was accepted for publication in Journal of International Finance and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, Volume 26, Issue 4, p. 546-569 (June 2007). The article is available online at: https://doi.org/10.1016/j.jimonfin.2007.03.006

DOI

10.1016/j.jimonfin.2007.03.006

Persistent Identifier

http://archives.pdx.edu/ds/psu/20339

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