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International Macroeconomics

In: Business and Management

Submitted By tomtoma83
Words 77395
Pages 310
International Macroeconomics1

Stephanie Schmitt-Groh´2 e April 26, 2013

Mart´ Uribe3 ın

1 The seeds for this manuscript were lecture notes taken by Alberto Ramos in a course on International Finance that Mike Woodford taught at the University of Chicago in the Winter of 1994. 2 Columbia University. E-mail: stephanie.schmittgrohe@columbia.edu. 3 Columbia University. E-mail: martin.uribe@columbia.edu.

ii

Contents
1 Global Imbalances 1.1 Balance-of-Payments Accounting . . . . . . . . . . . . . . . . 1.2 The Current Account . . . . . . . . . . . . . . . . . . . . . . 1 1 5

1.3 The Current Account and the Net International Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4 Valuation Changes and the Net International Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.5 The Negative-NIIP-Positive-NII Paradox: Dark Matter? 1.5.1 1.5.2 . . 20

Dark Matter . . . . . . . . . . . . . . . . . . . . . . . 22 Return Differentials . . . . . . . . . . . . . . . . . . . 23

1.6 Who Lends and Who Borrows Around the World? . . . . . . 26 1.7 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 35

2 Current Account Sustainability

2.1 Can a Country Run a Perpetual Trade Balance Deficit? . . . 35 2.2 Can a Country Run a Perpetual Current Account Deficit? . 39

2.3 Savings, Investment, and the Current Account . . . . . . . . 41 iii

iv 2.3.1

CONTENTS Current Account Deficits As Declines in the Net International Investment Position . . . . . . . . . . . . . 2.3.2 2.3.3 41

Current Account Deficits As Reflections of Trade Deficits 42 The Current Account As The Gap Between Savings and Investment . . . . . . . . . . . . . . . . . . . . . . 42

2.3.4

The Current Account As the Gap Between National Income and Domestic Absorption . . . . . . . . . . . . 44

2.4

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