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The Unsustainable US Current Account Position Revisited

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  • Maurice Obstfeld
  • Kenneth Rogoff

Abstract

We show that the when one takes into account the global equilibrium ramifications of an unwinding of the US current account deficit, currently estimated at 5.4% of GDP, the potential collapse of the dollar becomes considerably larger--more than 50% larger--than our previous estimates (Obstfeld and Rogoff 2000a). That global capital markets may have deepened (as emphasized by US Federal Reserve Chairman Alan Greenspan) does not affect significantly the extent of dollar decline in the wake of global current account adjustment. Rather, the dollar adjustment to global current account rebalancing depends more centrally on the level of goods-market integration. Whereas the dollar's decline may be benign as in the 1980s, we argue that the current conjuncture more closely parallels the early 1970s, when the Bretton Woods system collapsed. Finally, we use our model to dispel some common misconceptions about what kinds of shifts are needed to help close the US current account imbalance. Faster growth abroad helps only if it is relatively concentrated in nontradable goods; faster productivity growth in foreign tradable goods is more likely to exacerbate the US adjustment problem.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10869.

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Date of creation: Nov 2004
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Publication status: published as Maurice Obstfeld & Kenneth Rogoff, 2005. "The unsustainable U.S. current account position revisited," Proceedings, Federal Reserve Bank of San Francisco.
Handle: RePEc:nbr:nberwo:10869

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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
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  3. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International financial adjustment," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  4. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
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  6. Joseph E. Gagnon, 2003. "Productive capacity, product varieties, and the elasticities approach to the trade balance," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 781, Board of Governors of the Federal Reserve System (U.S.).
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  12. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc.
  13. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
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