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Targeting Australia’s Current Account: A New Mercantilism?

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  • Makin, A.J.

    (Canberra College of Advanced Education, Belconnen, ACT)

Abstract

This paper questions some widespread concerns about Australia’s current account deficit, including the level of absorption and external debt. Influences on the external accounts which lie beyond effective policy control in the short run, viz. the terms of trade and the “valuation” effect of earlier depreciations, are shown to have been the main factors widening the deficit over recent years. With the terms of trade fluctuating sharply, the exchange rate should be allowed to float more freely to bring about the necessary restructuring of the economy. A macroeconomic policy response directed toward the current account imbalance per se is reminiscent of mercantilism and seems misplaced in the light of Australia’s dependence on capital imports. “… the mechanism of foreign trade is self adjusting and attempts to interfere with it are not only futile, but greatly impoverish those who practise them …” [Keynes (1936) p.333].

Suggested Citation

  • Makin, A.J., 1988. "Targeting Australia’s Current Account: A New Mercantilism?," Economic Analysis and Policy, Elsevier, vol. 18(2), pages 199-212.
    • Handle: RePEc:eee:ecanpo:v:18:y:1988:i:2:p:199-212
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    Cited by:

    1. David Gruen & Amanda Sayegh, 2005. "The Evolution of Fiscal Policy in Australia," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(4), pages 618-635, Winter.
    2. Tony Makin, 1994. "Not the Current-Account Constraint Again!," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 1(1), pages 125-127.
    3. Blake Ford & Luky Alfirman & Ferry Irawan, 2015. "Shared learnings: Indonesia's and Australia's current account balances," Economic Roundup, The Treasury, Australian Government, issue 1, pages 1-17, June.
    4. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2008. "Current Account Deficits: Tha Australian Debate," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 13, pages 491-535, Central Bank of Chile.

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