Adjustment of the US current account deficit
AbstractWe present a two country DGE model and estimate it using Bayesian techniques and euro area and US quarterly data for 1977–2004. In analysing the current accounts we find that a lower US rate of time preference or a higher dollar risk premium could render the deficit sustainable, but that these could push the interest rate to the zero bound. Secondly, we find that fiscal policy is not sufficiently effective to improve the current account although the zero bound is not hit.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 9/2007.
Length: 37 pages
Date of creation: 12 Sep 2007
Date of revision:
current account; zero bound; policy coordination;
Find related papers by JEL classification:
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-16 (All new papers)
- NEP-CBA-2007-09-16 (Central Banking)
- NEP-IFN-2007-09-16 (International Finance)
- NEP-MAC-2007-09-16 (Macroeconomics)
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