This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Current account adjustment with high financial integration: a scenario analysis

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Michele Cavallo
Cédric Tille

Additional information is available for the following registered author(s):

Abstract

A narrowing of the U.S. current account deficit through exchange rate movements is likely to entail a substantial depreciation of the dollar. We assess how the adjustment is affected by the high degree of international financial integration, with exchange rate movements having a direct valuation impact on international assets and liabilities. In particular, a dollar depreciation generates a capital gain for the United States by boosting the value of its assets that are denominated in foreign currencies. We consider an adjustment scenario in which the U.S. net external debt is held constant. One key finding is that while the current account moves into balance, the pace of adjustment is smooth. Intuitively, the valuation gains stemming from the depreciation of the dollar allow the United States to finance ongoing, albeit shrinking, current account deficits. We find that the smooth pattern of adjustment is robust to alternative scenarios, although the ultimate movements in exchange rates are affected.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.frbsf.org/publications/economics/review/2006/er31-45.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (2006)
Issue (Month): ()
Pages: 31-45
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:fip:fedfer:y:2006:p:31-45

Contact details of provider:
Postal: P.O. Box 7702, San Francisco, CA 94120-7702
Phone: (415) 974-2000
Fax: (415) 974-3333
Email:
Web page: http://www.frbsf.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.frbsf.org/popups/fiporder.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Balance of trade ; Foreign exchange ; International trade;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. David Backus & Espen Henricksen & Frederic Lambert & Chris Telmer, 2005. "Current Account Fact and Fiction," 2005 Meeting Papers 115, Society for Economic Dynamics.
  2. Maurice Obstfeld & Kenneth Rogoff, 2004. "The Unsustainable US Current Account Position Revisited," NBER Working Papers 10869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Maurice Obstfeld, 2004. "External Adjustment," NBER Working Papers 10843, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," CEPR Discussion Papers 4923, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  6. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2005-1), pages 67-146. [Downloadable!]
  7. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle Currency Use in International Trade," NBER Working Papers 11127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Gian Maria Milesi-Ferretti & Philip R. Lane, 2005. "A Global Perspective on External Positions," IMF Working Papers 05/161, International Monetary Fund. [Downloadable!]
    Other versions:
  9. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrea Ferrero & Mark Gertler & Lars E.O. Svensson, 2008. "Current Account Dynamics and Monetary Policy," NBER Working Papers 13906, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports 226, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  3. Claudia M. Buch & Jörn Kleinert, 2007. "Multinational Firms and New Protectionisms," IAW Discussion Papers 33, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
  4. Matthew Higgins & Thomas Klitgaard & Cédric Tille, 2006. "Borrowing without debt? Understanding the U.S. international investment position," Staff Reports 271, Federal Reserve Bank of New York. [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS is also providing many rankings, for example of authors and institutions.

This page was last updated on 2009-11-10.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.