Sources of instability in the international accounts

Abstract

time and energy of economists and government officials alike has been devoted to the reduction of balance of payments disequilibria. Though the problem seems generally more pressing and immediate in the deficit countries, it is true that sometimes even policy makers in the surplus countries are acutely embarrassed by the size of their country's surplus and that policies designed to reduce the size of the surplus are pursued. Given the fact that so much effort is directed towards the solution of balance of payments problems, it seems surprising that the question of which items in the balance of payments are responsible for most of the imbalance has attracted little attention. The overall balance of payments disequilibrium, however defined, is the net result of the imbalances of the individual balance of payments subaccounts. But overall balance of payments equilibrium does not require balance in each and every subaccount. All that is required is that the sum of surpluses is equal to the sum of deficits in the subaccounts. Thus it is entirely possible, perhaps even typical, that in a country which has attained overall balance of payments equilibrium the individual subaccounts are not in balance.