'Imbalances' for the Long Run

Abstract

Net exports and current account balances among developed countries,which contributed to the so called “global imbalances”, arehighly persistent. Despite success along many dimensions, internationalbusiness cycle models have difficulty replicating these salient,low-frequency features of international capital flows. In particular,net exports and current account balances are much more persistent in thedata than in standard models. We document these important empiricalfacts about international capital flows. Further, we show that we canaccount for them with a parsimonious one-good two-country model withsmall, persistent differences in per capita GDP growth, matching thosewe observe among developed countries.

Keywords: net exports, current account, technology shocks