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Why has the American Trade Balance Continued Deteriorating since 2002 despite the Depreciation of the U.S. Dollar?

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Author Info

  • Pierre Beynet

    (DGTPE)

  • Éric Dubois

    (DGTPE)

  • Damien Fréville

    (DGTPE)

  • Alain Michel

    (DGTPE)

Registered author(s):

    Abstract

    The American trade deficit has grown continually since 2002, reaching a record high in 2005, even though the U.S. dollars four-year decline has had a positive impact, estimated at nearly 1% of GDP, as expected from the J-curve mechanism Improved non oil terms of trade, and cyclical divergence between the United States and the rest of the world, have also been favourable to the American trade balance. However, other factors have offset these positive effects. The United States energy bill and the initial low import coverage ratio. The remaining source of deficit growth, is due to unexplained factors such as "non-price competitiveness". The American trade balance is expected to remain at the same level as 2006. Simulations suggest that in the short term, only a slowdown of the American economy (- 1% growth) could lead to a significant reduction in its trade deficit (by - 0.4% in 2007).

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    File URL: http://www.insee.fr/fr/ffc/docs_ffc/ES397a.pdf
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    Bibliographic Info

    Article provided by Institut National de la Statistique et des Etudes Economiques in its journal Economie et Statistique.

    Volume (Year): 397 (2007)
    Issue (Month): (February)
    Pages: 3-20

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    Handle: RePEc:crs:ecosta:es397a

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    Related research

    Keywords: Trade deficit; J Curve; Trade Elasticities; Exchange Rate Pass-Through; US Dollar; Global Imbalances;

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    1. Joseph E. Gagnon, 2003. "Long-run supply effects and the elasticities approach to trade," International Finance Discussion Papers 754, Board of Governors of the Federal Reserve System (U.S.).
    2. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
    3. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.).
    4. Robert Z. Lawrence, 1990. "U.S. Current Account Adjustment: An Appraisal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 343-392.
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