Global Imbalance: A Policy Mishap or a Rational Outcome? The Case of Korea

Abstract

Among multitude of issues, global imbalance has attracted more attention than may be warranted because it is perceived to be policy induced and constrain global growth, or a zero sum game in the sense of growing at another countries' expense. Yet many of those with a current account surplus face a rapidly aging population that motivates high savings to ensure consumption smoothing. Those with a deficit, on the other hand, may need to be there for the opposite reason. Thus, a current account imbalance could be a rational market outcome, rather than a policy induced market distortion.