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Implications of the U.S. current account deficit

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  • David H. Howard
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    Abstract

    In 1988, the United States recorded a current account deficit of about $135 billion. The consensus forecast seems to be for little change in the current account in the near term. In this paper, the implications of the U.S. current account deficit and of the consequent buildup in U.S. external debt are examined. The analytical framework for thinking about the U.S. current account is first surveyed, and the results from the empirical literature on the causes of the deficits in the 1980s are then reported. The sustainability of the U.S. external position is discussed next. It is concluded that, at some point, the U.S. trade deficit has to be closed, but that it is conceivable that the U.S. current account balance could remain substantially negative. How the trade gap might be closed is addressed in the final section of the paper.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/350/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/350/ifdp350.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 350.

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    Date of creation: 1989
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    Handle: RePEc:fip:fedgif:350

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    Keywords: Balance of trade ; Debts; External;

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    1. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
    2. Barry Eichengreen, 1989. "Trade Deficits in the Long Run," NBER Working Papers 2437, National Bureau of Economic Research, Inc.
    3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
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    Cited by:
    1. Owen F. Humpage, 2001. "International financial flows and the current business expansion," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr.
    2. Danica Unevska Andonova & Branimir Jovanovic, 2011. "Sustainability of the Macedonian Current Account," Working Papers 2011-06, National Bank of the Republic of Macedonia.
    3. Deborah Danker & Peter Hooper, 1990. "International financial markets and the U.S. external imbalance," International Finance Discussion Papers 372, Board of Governors of the Federal Reserve System (U.S.).

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