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The long-run determinants of U.S. external imbalances

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  • Andrea Ferrero

Abstract

This paper develops a tractable two-country model with life-cycle structure to investigate analytically and quantitatively three potential determinants of the U.S. external imbalances in the last three decades: productivity growth, demographic factors, and fiscal policy. The results suggest that (1) productivity growth differentials are the main driving force at high frequencies, (2) the different evolution of demographic factors across countries accounts for a large portion of the long-run trend, and (3) fiscal policy plays, at best, a minor role. The main prediction of the analysis is that among industrialized countries, capital should generally be expected to flow toward relatively young and rapidly growing economies. In addition, the paper shows that international demographic trends might be partly responsible for the recent declining pattern of the world real interest rate and therefore shed new light on the real side of the interest rate conundrum.

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  • Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports 295, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:295
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    Cited by:

    1. Andrea Ferrero & Mark Gertler & Lars E. O. Svensson, 2007. "Current Account Dynamics and Monetary Policy," NBER Chapters,in: International Dimensions of Monetary Policy, pages 199-244 National Bureau of Economic Research, Inc.
    2. Cacciatore, Matteo & Ghironi, Fabio & Stebunovs, Viktors, 2015. "The domestic and international effects of interstate U.S. banking," Journal of International Economics, Elsevier, vol. 95(2), pages 171-187.
    3. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
    4. Charles Engel & John H Rogers, 2009. "Expected Consumption Growth from Cross-Country Surveys: Implications for Assessing International Capital Markets," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 543-573, August.
    5. Zaman, Gheorghe & Georgescu, George, 2011. "Sovereign risk and debt sustainability: warning levels for Romania," MPRA Paper 32924, University Library of Munich, Germany.
    6. Kadish, Peter, 2010. "Are Large Multinational Companies Undervalued? Emerging Markets Perspective," MPRA Paper 24315, University Library of Munich, Germany.

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    Keywords

    Capital movements ; Productivity ; Demography ; Fiscal policy ; Interest rates;

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