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How much depreciation of the US dollar for sustainability of the current accounts?

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Author Info
Eiji Ogawa
Takeshi Kudo
Abstract

In this paper, we conduct a simulation analysis to investigate how much depreciation of the US dollar is needed to reduce the current account deficits in the near future. We use some VAR models to estimate relationships between the exchange rate of the US dollar and the current accounts in the United States. We conclude that some scenarios of the US dollar depreciation would reduce the current account deficits to a level under 2% of GDP in the next several years. The results are regarded as robust for each of the scenarios thought they depend on our supposed VAR models.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d04-44.

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Date of creation: Nov 2004
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Handle: RePEc:hst:hstdps:d04-44

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Related research
Keywords: US dollar depreciation; Current account sustainability; Investment-saving balance; International trade flows; Vector Autoregression (VAR);

Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F31 - International Economics - - International Finance - - - Foreign Exchange
F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation

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  1. Ahmed, S. & Rogers, J.H., 1993. "Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?," Papers 5-93-6, Pennsylvania State - Department of Economics.
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  2. Milesi-Ferretti, G-M & Razin, A, 1996. "Current-Account Sustainability," Princeton Studies in International Economics 81, International Economics Section, Departement of Economics Princeton University,.
  3. Catherine L. Mann, 2002. "Perspectives on the U.S. Current Account Deficit and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 131-152, Summer. [Downloadable!] (restricted)
  4. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February. [Downloadable!] (restricted)
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  5. Ronald McKinnon, 2001. "The International Dollar Standard and Sustainability of the U.S. Current Account Deficit," Working Papers 01013, Stanford University, Department of Economics. [Downloadable!]
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