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The long-run determinants of U.S. external imbalances

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  • Andrea Ferrero

Abstract

This paper develops a tractable two-country model with life-cycle structure to investigate analytically and quantitatively three potential determinants of the U.S. external imbalances in the last three decades: productivity growth, demographic factors, and fiscal policy. The results suggest that (1) productivity growth differentials are the main driving force at high frequencies, (2) the different evolution of demographic factors across countries accounts for a large portion of the long-run trend, and (3) fiscal policy plays, at best, a minor role. The main prediction of the analysis is that among industrialized countries, capital should generally be expected to flow toward relatively young and rapidly growing economies. In addition, the paper shows that international demographic trends might be partly responsible for the recent declining pattern of the world real interest rate and therefore shed new light on the real side of the interest rate conundrum.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 295.

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Date of creation: 2007
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Handle: RePEc:fip:fednsr:295

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Keywords: Capital movements ; Productivity ; Demography ; Fiscal policy ; Interest rates;

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References

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Citations

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Cited by:
  1. Zaman, Gheorghe & Georgescu, George, 2011. "Sovereign risk and debt sustainability: warning levels for Romania," MPRA Paper 32924, University Library of Munich, Germany.
  2. Fabio Ghironi & Viktors Stebunovs, 2010. "The Domestic and International Effects of Interstate U.S. Banking," Boston College Working Papers in Economics 765, Boston College Department of Economics.
  3. Charles Engel & John H. Rogers, 2008. "Expected consumption growth from cross-country surveys: implications for assessing international capital markets," International Finance Discussion Papers 949, Board of Governors of the Federal Reserve System (U.S.).
  4. Andrea Ferrero & Mark Gertler & Lars E. O. Svensson, 2007. "Current Account Dynamics and Monetary Policy," NBER Chapters, in: International Dimensions of Monetary Policy, pages 199-244 National Bureau of Economic Research, Inc.
  5. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
  6. Kadish, Peter, 2010. "Are Large Multinational Companies Undervalued? Emerging Markets Perspective," MPRA Paper 24315, University Library of Munich, Germany.

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