IMF Working Papers

Are Australia's Current Account Deficits Excessive?

Author/Editor:

C. John McDermott ; Paul Cashin

Publication Date:

August 1, 1996

Summary:

This paper compares the evolution of the Australian current account balance over the period 1954–94 against an optimal current account derived from a consumption-smoothing model. The findings indicate that the Australian current account was not used to smooth consumption optimally in the period prior to the relaxation of capital controls in the early 1980s. The results also suggest that in the period since the mid-1980s Australia’s current account deficits have become excessive, and that the increase in national saving required to satisfy its external borrowing constraint is about 2 to 4 percent of GDP.

Series:

Working Paper No. 1996/085

Subject:

Balance of payments Consumption Current account Current account balance Current account deficits External position Foreign liabilities National accounts