Persistent current account imbalances: Are they good or bad for regional and global growth?

This paper examines the regional and global growth effects of current account imbalances in Japan, Germany, People’s Republic China (PRC)—the three largest persistent surplus countries—and United States Kingdom, two deficit countries. Controlling for a set macroeconomic determinants, we use structural vector autoregression (SVAR) framework to show that positive shocks balances PRC, Japan transmit effects, particularly case spillovers from Japan. As expected, response is lower magnitude than response. In addition, extent effect amplified by value chains, pointing significant role played trade intermediate goods. For countries, magnitudes responses are much on average We find some marginal emanating shock UK account—i.e., reduction deficit. US, its marginally drags growth, possibly reflecting declining import demand wealth linked US dollar’s status as reserve currency. Our findings have important policy implications, light discussions recent years whether countries hindering abroad.