Wednesday, September 6, 2017

I'm with Menzie

From Demystifying the trade balance: Why a trade balance deficit isn't necessarily a sign of a poor economy at the FRED Blog:

Is it bad to have a trade account deficit? If this means that your economy is booming and local production cannot keep up with demand, then no. If it implies that there is a current account deficit and, hence, foreigners are investing in your country, then also no. If this means that you can have more investment without having to save more, because the rest of the world is picking up the slack, no again. If you are worried that in the future dividends will flow abroad, then yes. But that will happen only if your economy is in good shape in the first place and will be able to afford paying such dividends.

From US Withdrawal from KORUS Free Trade Agreement?

This is not to argue we couldn’t have more aggregate demand redistributed to the US — in my recent paper on global imbalances I argue that in fact it would be desirable for the US to have a smaller current account deficit.
Menzie Chinn

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