Correcting US Imbalances
AbstractThe US current account deficit is in excess of 6 per cent of GDP, and is leading to an accumulation of debts. We use NiGEM to evaluate the causes of the decline, and suggest that domestic absorption in the US has increased markedly. Nominal realignments and monetary expansions elsewhere are shown to be only short term palliatives. A sustained change in the current account must come either from a real realignment associated with a rise in risk premia on US assets or from a change in domestic absorption in the US and elsewhere. Any adjustment must be associated with a significant change in eth US real exchange rate to induce expenditure switching as well.
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Bibliographic InfoPaper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 290.
Date of creation: Mar 2007
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-CBA-2007-08-08 (Central Banking)
- NEP-MAC-2007-08-08 (Macroeconomics)
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