IDEAS home Printed from
   My bibliography  Save this paper

Prospects for sustained improvement in U.S. external balance: structural change versus policy change


  • Catherine L. Mann


This paper assesses prospects for sustained improvement in the U.S. external balance drawing on both model-based macro analysis and examination of disaggregated data. Most model projections of the future path of U.S. external balance show the recent improvement petering out by the end 1989 or so. Key structural factors leading to the expected future worsening of U. S. external balance are two asymmetries--the "income asymmetry" and the "pass-through asymmetry". That is, asymmetries in the pricing behavior of U.S. exporters and foreign suppliers and asymmetries in the elasticities of U.S. demand for imports and foreign demand for U.S. exports with respect to economic activity. ; However, could projections based on historical relationships be misleading? Have these models ignored important changes in the international environment? Changes in trading partners and composition of trade, in income responsiveness, exchange rate movements and price competitiveness, the net debt position, trade protection, long-term supply response, and model uncertainty are considered. ; Plausible (or sometimes implausible) changes in the historical relationships do not materially change the medium-term outlook for a future deterioration in U.S. external balance. However, model uncertainty suggests that confidence intervals around the point estimates of key parameters are sufficiently large that periods of improvement in U.S. external balance are within the realm of statistical probability; nevertheless, the outlook for sustained improvement remains problematical. ; This suggests that outcomes for growth and the exchange rate different from those assumed in the projections, and which would probably stem from a different configuration of fiscal and monetary policies here and abroad, are likely necessary to put U.S. external balance on a sustainable path.

Suggested Citation

  • Catherine L. Mann, 1990. "Prospects for sustained improvement in U.S. external balance: structural change versus policy change," International Finance Discussion Papers 373, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:373

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Edison, Hali J. & Marquez, Jaime R. & Tryon, Ralph W., 1987. "The structure and properties of the Federal Reserve Board Multicountry Model," Economic Modelling, Elsevier, vol. 4(2), pages 115-315, April.
    2. David H. Howard, 1989. "The United States as a heavily indebted country," International Finance Discussion Papers 353, Board of Governors of the Federal Reserve System (U.S.).
    3. Jaime R. Marquez & Neil R. Ericsson, 1990. "Evaluating the predictive performance of trade-account models," International Finance Discussion Papers 377, Board of Governors of the Federal Reserve System (U.S.).
    4. Ellen E. Meade, 1991. "Computers and the Trade Deficit: The Case of the Falling Prices," NBER Chapters,in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 61-88 National Bureau of Economic Research, Inc.
    5. Joseph E. Gagnon, 1989. "A forward-looking multicountry model: MX3," International Finance Discussion Papers 359, Board of Governors of the Federal Reserve System (U.S.).
    6. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
    7. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
    8. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Balance of trade;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:373. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.