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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, vol. 25(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. 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.
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    5. Jack L. Hervey, 1986. "The internationalization of Uncle Sam," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 10(May), pages 3-14.
    6. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    7. 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.
    8. Francois R. Velde, 1999. "Americans are not saving: should we worry?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue May.
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    Cited by:

    1. 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.
    2. Dimitris Hatzinikolaou & Theodore Simos & Agathi Tsoka, 2013. "Is the US current-account deficit sustainable? The importance of structural breaks in testing sustainability," Economics Bulletin, AccessEcon, vol. 33(4), pages 2817-2827.
    3. Abdelaziz Rouabah, 2005. "Les déterminants du solde de la balance des transactions courantes au Luxembourg," BCL working papers 13, Central Bank of Luxembourg.
    4. Luigi Bonatti, 2006. "Unbalanced Growth and the Sustainability of the Current Account Deficit," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 773-796, November.
    5. 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.
    6. Owen F. Humpage, 2001. "International financial flows and the current business expansion," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr.
    7. Dimitris Hatzinikolaou & Dimitrios Hatzinikolaou, 2025. "Modeling aggregate investment under financial constraints," Empirical Economics, Springer, vol. 68(2), pages 759-781, February.

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