This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum...

Do the U.S. have a current account surplus or a deficit with the EU? Since 2009, official sources disagree: The U.S. Department of Commerce claims a consistent U.S. surplus while Eurostat reports the opposite. International transactions are notoriously difficult to measure accurately, but the...

A view receiving increased support is that the height of trade costs in prime export sectors has a strong effect on current account balances: countries specializing in sectors that face relatively high trade costs, such as services, tend to run current account deficits, and similarly, countries...

Do the U.S. have a current account surplus or a deficit with the EU? Since 2009, official sources disagree: The U.S. Department of Commerce claims a consistent U.S. surplus while Eurostat reports the opposite. International transactions are notoriously difficult to measure accurately, but the...

Growing international integration in trade and finance can challenge the measurement of external accounts. This paper presents a unified conceptual framework for identifying sources of mismeasurement of foreign investment income in current account balances. The framework allows to derive a...

This paper analyzes, both theoretically and empirically, the link between capital inflows and the quality of economic institutions. To this purpose, we construct a small-open economy model of the “soft budget constraint” syndrome wherein persistently cheap funding from abroad (i) raises the...

In this paper, we take a systematic look at global imbalances. First, we provide a definition of the phenomenon, and relate global imbalances to widening external positions of systemically important economies that reflect distortions or entail risks for the global economy. Second, we provide an...