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The Impact of Cyclical Factorson the U.S. Balance of Payments

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  • Joshua E. Greene
  • Magda E. Kandil

Abstract

Real GDP growth and real effective exchange rate (REER) appreciation appear cointegrated with the current and financial accounts of the U.S. balance of payments. On this basis, we estimate reduced form equations showing that expected changes and shocks to real GDP, the REER, energy prices, and growth in emerging market economies and other industrial countries explain much of the short-term variation in the U.S. current account balance, with the balance worsening as real GDP, energy prices, and the REER increase. In addition, foreign direct investment rises with real growth, while stock market prices affect the composition of capital inflows.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/45.

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Length: 43
Date of creation: 01 Mar 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/45

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  1. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  2. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
  3. Magda E. Kandil, 2000. "Demand-Side Stabilization Policies," IMF Working Papers 00/197, International Monetary Fund.
  4. Assaf Razin & Gian-Maria Milesi-Ferretti, 1996. "Current Account Sustainability," IMF Working Papers 96/110, International Monetary Fund.
  5. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment," IMF Occasional Papers 167, International Monetary Fund.
  6. Dufour, Jean-Marie, 1982. "Generalized Chow Tests for Structural Change: A Coordinate-Free Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 565-75, October.
  7. Engle, Robert F., 1982. "A general approach to lagrange multiplier model diagnostics," Journal of Econometrics, Elsevier, vol. 20(1), pages 83-104, October.
  8. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
  9. Ronald McKinnon, 2001. "The International Dollar Standard and Sustainability of the U.S. Current Account Deficit," Working Papers 01013, Stanford University, Department of Economics.
  10. Ronald I. McKinnon, 2001. "The International Dollar Standard and the Sustainability of the U.S. Current Account Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 227-241.
  11. Hamid Faruqee & Guy Debelle, 1996. "What Determines the Current Account? a Cross-Sectional and Panel Approach," IMF Working Papers 96/58, International Monetary Fund.
  12. Menzie David Chinn & Eswar Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries," IMF Working Papers 00/46, International Monetary Fund.
  13. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November.
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Cited by:
  1. Torsten Schmidt & Torge Middendorf, 2004. "Characterizing Movements of the U.S. Current Account Deficit," RWI Discussion Papers 0024, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  2. Yoichi Matsubayashi, 2009. "Structural and Cyclical Movements of the Current Account in the U.S. 1976-2007," Discussion Papers 0829, Graduate School of Economics, Kobe University.
  3. Magda Kandil, 2006. "On the transmission of exchange rate fluctuations to the macroeconomy: Contrasting evidence for developing and developed countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(1), pages 101-127.
  4. Herrmann, Sabine & Jochem, Axel, 2005. "Determinants of current account developments in the central and east European EU member states - consequences for the enlargement of the euro area," Discussion Paper Series 1: Economic Studies 2005,32, Deutsche Bundesbank, Research Centre.
  5. Yusuf Ekrem Akbas & Mehmet Senturk & Canan Sancar, 2013. "Testing for Causality between the Foreign Direct Investment, Current Account Deficit, GDP and Total Credit: Evidence from G7," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 791-812, December.

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