International Investors, the U.S. Current Account, and the Dollar
AbstractTwo main forces lie behind the large U.S. current account deficits: an increase in U.S. demand for foreign goods and an increase in foreign demand for U.S. assets. Both have contributed to steadily increasing current account deficits since the mid-1990s, accompanied by a real dollar appreciation until late 2001 and a real depreciation since, which accelerated in late 2004. This paper explores whether and how much more depreciation is to come, and against which currencies: the euro, the yen, or the renminbi. The paper develops a simple model of exchange rate and current account determination based on imperfect substitutability in both goods and asset markets and uses that model to interpret the past and explore alternative future scenarios. The paper concludes that substantially more depreciation is to come, surely against the yen and the renminbi, and probably against the euro.
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Bibliographic InfoArticle provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.
Volume (Year): 36 (2005)
Issue (Month): 1 ()
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macroeconomics; International Investors; U.S. Current Account; Dollar;
Find related papers by JEL classification:
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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