Development of Study on Current Account Imbalances and Foreign Sectors in Macro-econometric Models

This paper surveys the development of the study of current account imbalances, including bilateral negotiation between Japan and the United States and between China and the United States. In this paper, we first give an overview of how economic and trade frictions over current account imbalances between Japan and the United States and between China and the United States have developed. Based on these observations, we suggest that resolving current account imbalances simply through bilateral negotiation is not possible. Second, we present the recent theoretical development of global current account imbalance mechanisms and related empirical literature. Finally, we show how macro-econometric models in Japan and other countries specify their foreign sectors.