This World Economics Roundtable event focuses on gross capital flows and their implications for financing trade deficits and for fiscal and financial stability. The World Economics Roundtable series is sponsored by the Mario Einaudi Center for International Studies, CRADLE, and Cornell Law School.

Global goods and services trade deficits and their financing have been an important subject of policy discussion. The pandemic again brings these issues into focus, as the pressing need for developed economies to increase spending could raise concerns about their ability to finance trade deficits.

National accounting methodologies and most mainstream economic theories have emphasized foreign real saving, or net capital flows, to finance and sustain trade deficits. At the same time, few economists and policymakers would dispute that large flows of foreign or domestic monetary financing, or gross capital flows, play a key role in determining international financing patterns and financial stability.

These two issues are typically not analyzed together in a coherent framework, with the real and the financial sides often kept apart for simplicity. The panelists will tackle the question of how developed nations’ trade deficits are financed by net and gross capital flows—and how we can understand the interactions of both categories of financing.

Panelists:

Maurice M. Obstfeld, former Chief Economist of the International Monetary Fund, Professor of Economics at U.C. Berkeley, and senior fellow at the Peterson Institute for International Economics

Authors of the 2020 Bank of England staff working paper, How Does International Capital Flow?: Michael Kumhof (BOE), Phurichai Rungcharoenkitkul (BIS), and Andrej Sokol (ECB)

Moderator: Binyamin Applebaum, New York Times