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Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate

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  • Martin S. Feldstein

Abstract

The large trade and current account deficits of the United States cannot continue indefinitely because doing so would constitute a permanent gift to the U.S. economy. The process that will cause this gift to shrink and that will eventually cause it to reverse is a fall in the dollar. The dollar will fall as private investors and governments become unwilling to accept the risk of increasing amounts of dollars in their portfolios, especially in a context in which they realize that the dollar must fall to reduce the trade imbalance. Although a more competitive dollar is the mechanism that will cause the U.S. trade deficit to decline, the fundamental requirement for a lower trade deficit is an increase in the U.S. national saving rate. So a rise will be driven by higher household savings of the coming years as the two primary forces that depressed savings in recent years are reversed: the exceptionally rapid rise in household wealth and the high level of mortgage refinancing with equity withdrawal.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13952.

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Date of creation: Apr 2008
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Handle: RePEc:nbr:nberwo:13952

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  1. Martin Feldstein, 2006. "The 2006 Economic Report of the President: Comment on Chapter One (The Year in Review) and Chapter Six (The Capital Account Surplus)," NBER Working Papers 12168, National Bureau of Economic Research, Inc.
  2. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," IMF Working Papers 07/9, International Monetary Fund.
  3. Martin Feldstein, 2005. "Monetary Policy in a Changing International Environment: The Role of Global Capital Flows," NBER Working Papers 11856, National Bureau of Economic Research, Inc.
  4. Robert J. Shiller, 2007. "Understanding recent trends in house prices and homeownership," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-123.
  5. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
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  1. Far Too Low for Far Too Long
    by JW Mason in Rortybomb on 2012-04-07 14:19:15
  2. Far Too Low for Far Too Long
    by JW Mason in Rortybomb on 2012-04-06 04:31:17
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Cited by:
  1. Hoffmann, Mathias & Krause, Michael & Laubach, Thomas, 2011. "Long-run growth expectations and 'global imbalances'," Discussion Paper Series 1: Economic Studies 2011,01, Deutsche Bundesbank, Research Centre.
  2. Franziska Ohnsorge & Ashoka Mody, 2010. "After the Crisis: Lower Consumption Growth but Narrower Global Imbalances?," IMF Working Papers 10/11, International Monetary Fund.
  3. Smith, Constance E., 2011. "External balance adjustment: An intra-national and international comparison," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1195-1213, October.
  4. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009.
  5. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series 25-2011, Friedrich-Schiller-University Jena.
  6. Chevallier, Julien, 2012. "Global imbalances, cross-market linkages, and the financial crisis: A multivariate Markov-switching analysis," Economic Modelling, Elsevier, vol. 29(3), pages 943-973.
  7. Vincent C.S. Lim & Victor Pontines, 2012. "Global Imbalances: A Primer," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp86, янваÑ.
  8. Pancaro, Cosimo, 2013. "Current account reversals in industrial countries: does the exchange rate regime matter?," Working Paper Series 1547, European Central Bank.
  9. Krause, Michael & Hoffmann, Mathias & Laubach, Thomas, 2013. "The Expectations-Driven U.S. Current Account," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79854, Verein für Socialpolitik / German Economic Association.

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