The future of the U.S. current account -- and thus of the U.S. dollar -- depend on whether foreign investors will continue to add U.S. assets to their investment portfolios. However, even under optimistic scenarios, the U.S. current account deficit is likely to go through a significant reversal at some point in time. This adjustment may be as large of 4% to 5% of GDP. In order to have an idea of the possible consequences of this type of adjustment, I have analyzed the international evidence on current account reversals using both non-parametric techniques as well as panel regressions. The results from this empirical investigation indicate that major current account reversals have tended to result in large declines in GDP growth. I also analyze the large U.S. current account adjustment of 1987-1991.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11669.
Length: Date of creation: Oct 2005 Date of revision: Handle: RePEc:nbr:nberwo:11669
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Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
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Other versions:
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[Downloadable!] (restricted)
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National Bureau of Economic Research, Inc.
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