Does the balance of payments matter anymore?

I have reached that time of the year when the dust is wiped from my balance of payments notes, charts are refreshed and my A2 group delve into the trade figues for different countries and ask the age old question, does it really matter if there are sizeable balance of payments imbalances?

The huge variations in the scale of current account deficits and surpluses from within the body of OECD countries seems to make this debate a live one again. Iceland’s financial crisis, the external deficits of many central and eastern european countries just a few years after their accession to the EU single market. And the continuing debate about the economics of the cavernous trade imbalances between China and the United States persuade me that ignoring the current account is a dangerous game.

As part of the discussion I have drawn some recent data from the OECD World Economic Outlook (November 2008) and a short glossary piece from the excellent Economist website. This is available below should colleagues wish to use and amend for their own students.

Student handout (word format) Is_there_such_a_thing_as_a_balance_of_payments_crisis.doc