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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

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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Publication status: published as THE USA AS THE ‘DEMANDER OF LAST RESORT’ AND THE IMPLICATIONS FOR CHINA'S CURRENT ACCOUNT Joshua Aizenman1, Yothin Jinjarak2,* Article first published online: 27 JUL 2009 DOI: 10.1111/j.1468-0106.2009.00450.x © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Asia Pty Ltd Issue Pacific Economic Review Pacific Economic Review Volume 14, Issue 3, pages 426–442, August 2009
Handle: RePEc:nbr:nberwo:14453

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  1. 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.
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  3. Aizenman, Joshua & Sun, Yi, 2010. "Globalization and the sustainability of large current account imbalances: Size matters," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 35-44, March.
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  18. Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, 2008. "Cross-Border Returns Differentials," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1495-1530, November.
  19. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals, and Sudden Stops," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 1-49, June.
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  21. Aizenman, Joshua, 2008. "Relative price levels and current accounts: an exploration," Santa Cruz Department of Economics, Working Paper Series qt6w64k75x, Department of Economics, UC Santa Cruz.
  22. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
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Cited by:
  1. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2010. "Surfing the Waves of Globalization: Asia and Financial Globalization in the Context of the Trilemma," NBER Working Papers 15876, National Bureau of Economic Research, Inc.
  2. Aizenman, Joshua, 2008. "Relative price levels and current accounts: an exploration," Santa Cruz Department of Economics, Working Paper Series qt6w64k75x, Department of Economics, UC Santa Cruz.

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