5. Conclusion
To conclude, current accounts have been at the centre of international economics and policy for a very long time. There are, of course, very good reasons for this. Current accounts tell us whether a country is spending more than it is producing. They are followed closely by market participants and can influence their mood changes. They can affect the macroeconomic costs of crises. And they can give rise to dangerous protectionist pressures. In short, in this respect I do agree with Maurice Obstfeld (2012), who gives an affirmative answer to the provocative question that heads up his Richard T Ely Lecture: “Does the current account still matter?” But, more generally, current accounts have been asked to tell us more than they can about several key macroeconomic magnitudes – about the volume and direction of capital flows; about how economic activity is financed; about the role countries play in financial intermediation, lending and borrowing; and about the risks of financial instability and the mechanisms involved. The same is true of their assumed prominent role in the determination of equilibrium interest rates, as recently highlighted in the saving glut hypothesis. In my remarks, I have argued that this ultimately stems from the failure to distinguish with suf- ficient clarity between saving and financing, and hence between net and gross flows, and ultimately to recognise the fundamentally monetary nature of our economies. In turn, this problem is compounded by the tempting tendency to extrapolate reasoning that holds in a two-country world to a multi-country world, where it does not apply.
