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Reprint of: The dollar and the current account deficit: How much should we worry?

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  • Mussa, Michael
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    Abstract

    The U.S. current account deficit is unsustainable and will need to fall by half as a share of GDP in coming years. The adjustment process will necessarily involve (1) substantial further real effective depreciation of the U.S. dollar, (2) slowing of U.S. demand growth below potential output growth, and (3) acceleration of demand growth relative to output growth in the rest of the world. Adjustment is likely to be reasonably orderly, with only modest risks of a “dollar crash”. Policy, including more aggressive fiscal consolidation in the U.S. and more rapid appreciation of key Asian currencies, can help assure orderly adjustment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Policy Modeling.

    Volume (Year): 34 (2012)
    Issue (Month): 4 ()
    Pages: 579-584

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    Handle: RePEc:eee:jpolmo:v:34:y:2012:i:4:p:579-584

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    Web page: http://www.elsevier.com/locate/inca/505735

    Related research

    Keywords: Unsustainable current account deficit; Real effective exchange rate depreciation; Demand growth relative to output growth; Dollar crash;

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