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The US as the "Demander of Last Resort" and its Implications on China's Current Account

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Joshua Aizenman
Yothin Jinjarak

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Abstract

This paper evaluates the degree to which current account patterns are explained by the variables suggested by the literature, and reflects on possible future patterns. We start with panel regressions explaining the current account of 69 countries during 1981-2006. We identify an asymmetric effect of the US as the "demander of last resort:" a 1% increase in the lagged US current account deficit is associated with 0.5% increase of current account surpluses of countries running surpluses, but with insignificant changes of current account deficits of countries running deficits. Overall, the panel regressions account for not more than 2/3 of the variation. We apply the regression results to assess China's current account over the next six years, projecting a large drop in its account/GDP surpluses.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14453.

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Date of creation: Oct 2008
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Handle: RePEc:nbr:nberwo:14453

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F15 - International Economics - - Trade - - - Economic Integration
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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