Explaining the global pattern of current account imbalances

We assess some of the explanations that have been put forward for the global pattern of current account imbalances that has emerged in recent years, particularly the large U.S. current account deficit and the large surpluses of the Asian developing economies. Adopting a panel-regression approach, as in Chinn and Prasad (2003. Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration. Journal of International Economics 59, 47–76), we find that the Asian surpluses are well explained by a model that incorporates, in addition to standard determinants, the impact of financial crises on current accounts. However, our model, even when augmented by measures of institutional quality, fails to explain the large U.S. current account deficit.