The large US current account deficit has in the recent past dominated both the news and much of the research conducted in the field of international macroeconomics. Although many agree that the deficit presents a challenge different to the external imbalances and indebtedness of Latin America back in the 1980s, a number of policymakers and economists nevertheless regard it as too large.Read more
To caricature, we could argue that there are two views on how to deal with the growth of the US current account deficit where the difference between the two depends, basically, on the desirability of public sector intervention to reduce the growth. The first view argues that as long as the US current account deficit is the outcome of optimized saving and investment behaviour by private agents with rational expectations under competitive market conditions free of frictions, there is no justification for public sector intervention. Read more
Recent innovations in the credit derivatives market have improved lenders' ability to transfer credit risk to other institutions while maintaining their relationship with their customers. Such innovations have generally received a guarded welcome from supervisory authorities and policymakers, who recognize the benefits of allowing risk to reside in separate institutions from the loan originators. Read more
China's importance for the world economy has increased appreciably in recent years. Rapid economic expansion has boosted China's share of world trade, and the Chinese trade surplus has also grown at a brisk pace. As a result, China has been under pressure to allow its currency to appreciate. In July 2005 China did revalue the renminbi's external value by about 2%. Since then the renminbi has been strengthening against the US dollar, albeit very slowly. Read more
Editor Jouko Vilmunen Publisher Bank of Finland ISSN 1796-9131 (online) PO Box 160, FI–00101 Helsinki Email: research@bof.fi
Research Newsletter 2/2007 (PDF)