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How much depreciation of the US dollar for sustainability of the current accounts?

Author

Listed:
  • Eiji Ogawa
  • Takeshi Kudo

Abstract

In this paper, we conduct a simulation analysis to investigate how much depreciation of the US dollar is needed to reduce the current account deficits in the near future. We use some VAR models to estimate relationships between the exchange rate of the US dollar and the current accounts in the United States. We conclude that some scenarios of the US dollar depreciation would reduce the current account deficits to a level under 2% of GDP in the next several years. The results are regarded as robust for each of the scenarios thought they depend on our supposed VAR models.

Suggested Citation

  • Eiji Ogawa & Takeshi Kudo, 2004. "How much depreciation of the US dollar for sustainability of the current accounts?," Hi-Stat Discussion Paper Series d04-44, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:hstdps:d04-44
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    File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2004/pdf/D04-44.pdf
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    Citations

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    Cited by:

    1. W. K. Wong, 2009. "Backtesting the tail risk of VaR in holding US dollar," Applied Financial Economics, Taylor & Francis Journals, vol. 19(4), pages 327-337.
    2. Eiji Ogawa & Takeshi Kudo, 2007. "Possible depreciation of the US dollar for unsustainable current account deficit in the United States," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(04), pages 24-30, January.
    3. Takeuchi, Fumihide, 2010. "US external debt sustainability revisited: Bayesian analysis of extended Markov switching unit root test," Japan and the World Economy, Elsevier, vol. 22(2), pages 98-106, March.
    4. Eiji Ogawa & Takeshi Kudo, 2007. "Possible depreciation of the US dollar for unsustainable current account deficit in the United States," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(4), pages 24-30, January.
    5. Ogawa, Eiji & Kudo, Takeshi, 2007. "Asymmetric responses of East Asian currencies to the US dollar depreciation for reducing the US current account deficits," Journal of Asian Economics, Elsevier, vol. 18(1), pages 175-194, February.

    More about this item

    Keywords

    US dollar depreciation; Current account sustainability; Investment-saving balance; International trade flows; Vector Autoregression (VAR);
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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