Advanced Search
MyIDEAS: Login to save this article or follow this journal

Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate

Contents:

Author Info

  • Martin Feldstein

Abstract

The massive deficit in the U.S. trade and current accounts is one of the most striking features of the current global economy and, to some observers, one of the most worrying. Although the current account deficit finally began to shrink in 2007, it remained at more than 5 percent of GDP -- more than $700 billion. While some observers claim that the U.S. economy can continue to have trade deficits of this magnitude for years -- some would say for decades -- into the future, I believe that such enormous deficits cannot continue and will decline significantly in the coming years. This paper discusses the reasons for that decline and the changes that are needed in the U.S. saving rate and in the value of the dollar to bring it about. Reducing the U.S. current account deficit does not require action by the U.S. government or by the governments of America's trading partners. Market forces alone will cause the U.S. trade deficit to decline further. In practice, however, changes in government policies at home and abroad may lead to faster reductions in the U.S. trade deficit. More important, the response of the U.S. and foreign governments and central banks will determine the way in which the global economy as a whole adjusts to the decline in the U.S. trade deficit. Reductions in the U.S. current account deficit will of course imply lower aggregate trade surpluses in the rest of the world. Taken by itself, a reduction in any country's trade surplus will reduce aggregate demand and therefore employment in that country. I will therefore look at what other countries -- China, Japan, and European countries -- can do to avoid the adverse consequences of the inevitable decline of the U.S. trade deficit.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.22.3.113
Download Restriction: no

Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 22 (2008)
Issue (Month): 3 (Summer)
Pages: 113-25

as in new window
Handle: RePEc:aea:jecper:v:22:y:2008:i:3:p:113-25

Note: DOI: 10.1257/jep.22.3.113
Contact details of provider:
Email:
Web page: https://www.aeaweb.org/jep/
More information through EDIRC

Order Information:
Web: https://www.aeaweb.org/subscribe.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Taylor, 2007. "Housing and Monetary Policy," Discussion Papers, Stanford Institute for Economic Policy Research 07-003, Stanford Institute for Economic Policy Research.
  2. Martin Feldstein, 2005. "Monetary Policy in a Changing International Environment: The Role of Global Capital Flows," NBER Working Papers 11856, National Bureau of Economic Research, Inc.
  3. Robert J. Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1630, Cowles Foundation for Research in Economics, Yale University, revised Oct 2007.
  4. Martin Feldstein, 2006. "The 2006 Economic Report of the President: Comment on Chapter One (The Year in Review) and Chapter Six (The Capital Account Surplus)," NBER Working Papers 12168, National Bureau of Economic Research, Inc.
  5. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," NBER Working Papers 13103, National Bureau of Economic Research, Inc.
  6. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital," IMF Working Papers 07/9, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Far Too Low for Far Too Long
    by JW Mason in Rortybomb on 2012-04-07 14:19:15
  2. Far Too Low for Far Too Long
    by JW Mason in Rortybomb on 2012-04-06 04:31:17
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kappler, Marcus & Reisen, Helmut & Schularick, Moritz & Turkisch, Edouard, 2011. "The macroeconomic effects of large exchange rate appreciations," ZEW Discussion Papers 11-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Ahmed, Khalid & Long, Wei, 2012. "An Analysis of Core Factors Contributing to U.S – China Trade Imbalance," MPRA Paper 44733, University Library of Munich, Germany.
  3. Vincent C.S. Lim & Victor Pontines, 2012. "Global Imbalances: A Primer," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp86, June.
  4. Hoffmann, Mathias & Krause, Michael & Laubach, Thomas, 2011. "Long-run growth expectations and 'global imbalances'," Discussion Paper Series 1: Economic Studies 2011,01, Deutsche Bundesbank, Research Centre.
  5. Smith, Constance E., 2011. "External balance adjustment: An intra-national and international comparison," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(6), pages 1195-1213, October.
  6. Virginie Coudert, 2009. "Mythes et réalités de la « zone dollar »," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 94(1), pages 151-169.
  7. Chevallier, Julien, 2012. "Global imbalances, cross-market linkages, and the financial crisis: A multivariate Markov-switching analysis," Economic Modelling, Elsevier, Elsevier, vol. 29(3), pages 943-973.
  8. Krause, Michael & Hoffmann, Mathias & Laubach, Thomas, 2013. "The Expectations-Driven U.S. Current Account," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79854, Verein für Socialpolitik / German Economic Association.
  9. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series 25-2011, Friedrich-Schiller-University Jena.
  10. Pancaro, Cosimo, 2013. "Current account reversals in industrial countries: does the exchange rate regime matter?," Working Paper Series, European Central Bank 1547, European Central Bank.
  11. Franziska Ohnsorge & Ashoka Mody, 2010. "After the Crisis," IMF Working Papers 10/11, International Monetary Fund.
  12. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009.
  13. Chris Hunt, 2008. "Financial turmoil and global imbalances: the end of Bretton Woods II?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, September.
  14. Joshua Aizenman & Yothin Jinjarak & Nancy P. Marion, 2013. "China's Growth, Stability, and Use of International Reserves," NBER Working Papers 19739, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:22:y:2008:i:3:p:113-25. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.