Assessing Global Imbalances: The Nuts and Bolts

2019-03-25T14:09:55-04:00June 26, 2017|

By Maurice Obstfeld

June 26, 2017

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Men playing chess: countries with rapidly aging populations need funds that they can draw down when their workers retire (photo: Caro/Jandke/Newscom)

Current account imbalances can be healthy or a sign of macroeconomic and financial stress—which makes their evaluation tricky. In line with its mandate of promoting international monetary cooperation, the IMF conducts annual external assessments for the world’s largest economies. The objective is to alert the global community to potential risks that countries need to address together.

Countries, like households, may spend above their incomes sometimes, and below them at other times. A country that spends above its income imports more goods and services than it exports and is said to have a current account deficit. It finances this deficit by incurring liabilities to the rest of the world, or by borrowing from it. […]