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The US Dollar and the Trade Deficit: What Accounts for the Late 1990s?

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  • Benjamin Hunt
  • Alessandro Rebucci

Abstract

Based on a version of the IMF's global economy model set up to analyse macroeconomic interdependence between the United States and the rest of the world, this paper asks to what extent accelerating productivity growth in the United States may have contributed to the US real exchange rate appreciation and the trade balance deterioration witnessed in the second half of the 1990s. The paper concludes that productivity is only part of this story. A portfolio preference shift in favour of US assets, possibly triggered by faster productivity growth, and some uncertainty and learning about the persistence of both shocks are needed to match the data more satisfactorily. Copyright Blackwell Publishing Ltd. 2005

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 8 (2005)
Issue (Month): 3 (December)
Pages: 399-434

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Handle: RePEc:bla:intfin:v:8:y:2005:i:3:p:399-434

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Cited by:
  1. Ogawa, Eiji & Iwatsubo, Kentaro, 2009. "External adjustments and coordinated exchange rate policy in Asia," Journal of Asian Economics, Elsevier, vol. 20(3), pages 225-239, May.
  2. Bems, Rudolfs & Dedola, Luca & Smets, Frank, 2007. "US imbalances: the role of technology and policy," Working Paper Series 0719, European Central Bank.
  3. Alessandro Rebucci & Nicoletta Batini & Pietro Cova & Massimiliano Pisani, 2009. "Global Imbalances," IMF Working Papers 09/63, International Monetary Fund.
  4. Chiu, Yi-Bin & Lee, Chien-Chiang & Sun, Chia-Hung, 2010. "The U.S. trade imbalance and real exchange rate: An application of the heterogeneous panel cointegration method," Economic Modelling, Elsevier, vol. 27(3), pages 705-716, May.
  5. Viktors Stebunovs & Fabio Ghironi, 2008. "The Domestic and International Effects of Financial Deregulation," 2008 Meeting Papers 676, Society for Economic Dynamics.
  6. Enrique G. Mendoza & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2007. "Financial Integration, Financial Deepness and Global Imbalances," NBER Working Papers 12909, National Bureau of Economic Research, Inc.
  7. Kuralbayeva, Karlygash & Vines, David, 2009. "The process by which the Dollar will fall: the effect of forward-looking consumers," CEPR Discussion Papers 7325, C.E.P.R. Discussion Papers.
  8. Luigi Bonatti & Andrea Fracasso, 2009. "The evolution of the Sino-American Co-dependency: modelling a regime switch in a growth setting," Department of Economics Working Papers 0905, Department of Economics, University of Trento, Italia.

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