Global Current Account Imbalances: American Fiscal Policy versus East Asian Savings


  • We thank Steve Kamin, Jaewoo Lee, Catherine Mann, Eswar Prasad, and participants at the CESifo–Athens University of Economics and Business conference “Global Economic Imbalances: Prospects and Remedies” (Delphi, 2–3 June) for helpful comments on earlier versions of this paper. Jian Wang ably assisted in the compilation of the dataset. We would also like to thank the Stockholm International Peace Research Institute (SIPRI) for generously sharing data. Chinn acknowledges the financial support of faculty research funds of the University of Wisconsin. Ito acknowledges the financial support of faculty research funds of Portland State University and the Japan Foundations.

Chinn: Robert M. La Follette School of Public Affairs; and Department of Economics, University of Wisconsin, 1180 Observatory Drive, Madison, WI 53706, USA. E-mail: Ito: Department of Economics, Portland State University, 1721 SW Broadway, Portland, OR 97201, USA. E-mail:


We consider the origins of global current account imbalances. We first discuss how the expansion of the US current account deficit and the decrease in global real interest rates can be reconciled with the widespread view that American expansionary fiscal policy is partly the source of current trends. We then investigate empirically the medium-term determinants of the current account using a model that controls for factors related to institutional development. In addition to the conventional macroeconomic factors, we examine a series of environmental factors, including the degree of financial openness and the extent of legal development. We find that for industrial countries, the government budget balance is an important determinant of the current account balance; the budget balance coefficient is 0.10 to 0.49 depending on model specifications. These varying estimates lead us to conclude that fiscal factors might be as important as excess savings arising from East Asia.