Trade deficits in the long run
AbstractThis paper provides an historical perspective on the recent behavior of the U.S. trade deficit. Judged by U.S. historical experience, the trade deficit has reached what is now unprecedented levels. That unprecedented deficit has its principal source not in changes in market structure affecting the speed with which quantities respond to prices but in the policy environment, namely the monetary-fiscal policy mix. While other industrial countries have run comparable merchandise trade deficits at various points in the past, these countries either financed their deficits out of interest earnings on prior foreign investments or through the large-scale export of services, or used the debt they incurred to finance investment in infra- structure and to expand their capacity to export. Neither of these scenarios has a counterpart in current U.S. experience. How easily can the trade deficit be eliminated if historical experience is a guide? Typically, the rapid reduction of deficits has been achieved through the reduction of imports; this typically entails restraints on aggregate demand from which recession results. Trade deficits have been reduced most quickly and at lowest cost when at least one of two conditions prevails: a favorable shock to the terms of trade or a reallocation of resources toward investment in export-oriented sectors. The first of these conditions is largely beyond the authorities' control, while the second must be initiated well in advance. Barring a fortuitous terms-of-trade shock, this does not give cause for optimism that the conditions are present for rapidly eliminating the U.S. trade deficit at low cost.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Federal Reserve Bank of St. Louis in its journal Proceedings.
Volume (Year): (1987)
Issue (Month): ()
Other versions of this item:
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.:
- Weir, David R., 1986. "The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 353-365, June.
- Robert E. Lipsey, 1963. "Price and Quantity Trends in the Foreign Trade of the United States," NBER Books, National Bureau of Economic Research, Inc, number lips63-1, octubre-d.
- Eichengreen, Barry, 1988.
"Real exchange rate behavior under alternative international monetary regimes : Interwar evidence,"
European Economic Review,
Elsevier, vol. 32(2-3), pages 363-371, March.
- Eichengreen, Barry, 1987. "Real Exchange Rate Behavior Under Alternative International Monetary Regimes: Interwar Evidence," Department of Economics, Working Paper Series qt0nh766xh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen., 1987. "Real Exchange Rate Behavior under Alternative International Monetary Regimes: Interwar Evidence," Economics Working Papers 8755, University of California at Berkeley.
- Chris Carroll & Lawrence H. Summers, 1987.
"Why Have Private Saving Rates in the United States and Canada Diverged?,"
NBER Working Papers
2319, National Bureau of Economic Research, Inc.
- Carroll, Chris & Summers, Lawrence H., 1987. "Why have private savings rates in the United States and Canada diverged?," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 249-279, September.
- Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
- Romer, Christina, 1986. "New Estimates of Prewar Gross National Product and Unemployment," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 341-352, June.
- Ramon Moreno, 1988. "Saving, investment, and the U.S. external balance," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 3-17.
- David H. Howard, 1989. "Implications of the U.S. current account deficit," International Finance Discussion Papers 350, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.