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A record current account deficit: causes and implications

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  • Jack L. Hervey
  • Loula S. Merkel

Abstract

The U.S. current account deficit was at a record level in 1999 and is expected to increase further in 2000. How large can this deficit get? Will an eventual adjustment in the deficit place the U.S. economy at risk? This article examines three arguments often put forth to explain the increase in the deficit--a consumption boom, the U.S. as a safe haven for short-term foreign capital and technological change affecting the U.S. economy. The authors find the strongest evidence in support of technological change and suggest why, under these conditions, an economic adjustment to the deficit need not to have as adverse an impact as some observes fear.

Suggested Citation

  • Jack L. Hervey & Loula S. Merkel, 2000. "A record current account deficit: causes and implications," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 2-13.
  • Handle: RePEc:fip:fedhep:y:2000:i:qiv:p:2-13:n:v.25no.4
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    References listed on IDEAS

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    1. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
    2. Jack L. Hervey & Michael A. Kouparitsas, 2000. "Should we be concerned about the current account?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Apr.
    3. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
    4. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799 Elsevier.
    5. Francois R. Velde, 1999. "Americans are not saving: should we worry?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue May.
    6. Owen F. Humpage, 1998. "Is the current-account deficit sustainable?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    7. Michael A. Kouparitsas, 1999. "Is there evidence of the new economy in the data?," Working Paper Series WP-99-22, Federal Reserve Bank of Chicago.
    8. Jack L. Hervey, 1986. "The internationalization of Uncle Sam," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 3-14.
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    Cited by:

    1. Annie Corbin, 2003. "Statut de monnaie de réserve du dollar et seigneuriage américain : bilan et perspectives," Revue d'Économie Financière, Programme National Persée, vol. 72(3), pages 265-276.
    2. Abdelaziz Rouabah, 2005. "Les déterminants du solde de la balance des transactions courantes au Luxembourg," BCL working papers 13, Central Bank of Luxembourg.
    3. Harashima, Taiji, 2015. "Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates," MPRA Paper 67177, University Library of Munich, Germany.

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