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The expectations-driven US current account

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Author Info

  • Hoffmann, Mathias
  • Krause, Michael U.
  • Laubach, Thomas

Abstract

Since 1991, survey expectations of long-run output growth for the U.S. relative to the rest of the world exhibit a pattern strikingly similar to that of the U.S. current account, and thus also to global imbalances. We show that this finding can to a large extent be rationalized in a two-region stochastic growth model simulated using expected trend growth filtered from observed productivity. In line with the intertemporal approach to the current account, a major part of the buildup of the U.S. current account deficit appears to be driven by the optimal response of households and firms to improved growth prospects. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 10/2013.

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Date of creation: 2013
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Handle: RePEc:zbw:bubdps:102013

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Keywords: open economy; stochastic trend growth; Kalman filter; news shocks;

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