Are Australia's current account deficits excessive?

This paper compares the evolution of the Australian current account balance over the period 1954-94 against an optimal current account derived from a consumption-smoothing model. The findings indicate that the Australian curr ent account was nor used to smooth consumption optimally in the period prio r to the relaxation of capital controls in the early 1980s. The results als o suggest that in the period since the mid-1980s Australia's current accoun t deficits have become excessive, and that the increase in net national sav ing required to satisfy its external borrowing constraint is about 2 to 4 p er cent of GDP.