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The occasional importance of the current account in an era of a global savings glut

Author(s): Jesper Berg and Steffen Lind

Date published: Jan 2018

SUERF Policy Note, Issue No 23
Jesper Berg and Steffen Lind
Danish Financial Supervisory Authority

JEL-codes: F21, F32, F36, F41 and G15.
Keywords: Balance of payments, current account, foreign debt, macroeconomic policy, savings glut.

In a good year, the savings glut allows many countries to run a current account deficit. Consequently, their level of investment is not constrained by domestic savings; cf. the Feldstein-Horioka puzzle (Feldstein and Horioka (1980)). However, in a bad year – when capital flows stop – the countries that have come to rely on capital inflows will experience a setback. Bussière et al. (2017) are cautiously optimistic on the post-crisis development of capital flows, including the resilience of equity-like flows, but they acknowledge the meltdown of international bank and debt financing in particular in the euro area.
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SUERF Policy Note, Issue 23SUERF Policy Note, Issue 23

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