Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?
AbstractThis paper analyzes the relationship between the U.S. dollar and the U.S. current account, dealing with issues of sustainability and the mechanics of current account adjustment. The analysis differs from other work in several respects. First, it emphasizes the dynamics of current account adjustment, going beyond computations of the real depreciation required to achieve sustainability. The analysis shows that, even if foreigners’ net demand for U.S. assets continues to increase significantly, the current account deficit is likely to fall steeply in the not too distant future. Second, the paper uses international evidence to explore the likelihood of an abrupt decline in capital flows into the United States. Third, it analyzes the international evidence on current account reversals, to investigate the potential consequences of a sudden stop of capital inflows. This analysis suggests that adjustment of the U.S. external accounts is likely to result in a significant reduction in growth.
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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; U.S. Current Account Deficit; Sustainable; Adjustment;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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