The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge...

This paper sets forth a new methodology for obtaining a consistent set of exchange rate realignments needed to accomplish international adjustment in current account imbalances to reach fundamental equilibrium exchange rates (FEERs). The approach is named the symmetric matrix inversion method...

Faced with income fluctuations, countries smooth their consumption by raising savings when income is high, and vice versa. How much of these savings do countries invest at home and abroad? In other words, what are the effects of fluctuations in savings on domestic investment and the current...

The long run relationship between current account balance (CAB) and capital account balance (KAB) and the repercussions of capital account convertibility (KAC) on growth process of a country is a much debated issue. In particular, in the aftermath of the Southeast Asian crisis, the limitation of...

Most studies on equilibrium exchange rates focus on a limited number of G7 countries. But in a situation of world imbalances, emerging countries can no longer be excluded. The study of all equilibrium exchange rates is delicate. First, the trade model has to be balanced at the aggregate level....

The large recent US current account deficits have been the subject of an enormous amount of study in academia, among government and central bank economists, in business economic reports, and in the press. Many different explanations of the cause of the deficit have been offered, and to varying...

Halving the US current account deficit as a share of GDP is likely to impose a burden of $2,350 per capita on the United States, which explains why US policymakers want to postpone adjustment. The rest of the world relies on the economic stimulus of a widening US external deficit, which explains...

This paper examines episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizeable slowdown in domestic growth and a large exchange rate depreciation. There was no discernable change in the nature of capital...

Financial stability is an important policy objective since crises are associated with big economic, social, and political costs. Promoting stability requires preventing 'sudden stops' in capital flows, which are events in which foreign financing abruptly disappears. This paper contributes to the...