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Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate

  • Martin S. Feldstein

The large trade and current account deficits of the United States cannot continue indefinitely because doing so would constitute a permanent gift to the U.S. economy. The process that will cause this gift to shrink and that will eventually cause it to reverse is a fall in the dollar. The dollar will fall as private investors and governments become unwilling to accept the risk of increasing amounts of dollars in their portfolios, especially in a context in which they realize that the dollar must fall to reduce the trade imbalance. Although a more competitive dollar is the mechanism that will cause the U.S. trade deficit to decline, the fundamental requirement for a lower trade deficit is an increase in the U.S. national saving rate. So a rise will be driven by higher household savings of the coming years as the two primary forces that depressed savings in recent years are reversed: the exceptionally rapid rise in household wealth and the high level of mortgage refinancing with equity withdrawal.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13952.

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Date of creation: Apr 2008
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Publication status: published as Martin Feldstein, 2008. "Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 113-25, Summer.
Handle: RePEc:nbr:nberwo:13952
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  1. John B. Taylor, 2007. "Housing and Monetary Policy," NBER Working Papers 13682, National Bureau of Economic Research, Inc.
  2. Martin Feldstein, 2006. "The 2006 Economic Report of the President: Comment on Chapter One (The Year in Review) and Chapter Six (The Capital Account Surplus)," NBER Working Papers 12168, National Bureau of Economic Research, Inc.
  3. Robert J. Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," NBER Working Papers 13553, National Bureau of Economic Research, Inc.
  4. Martin Feldstein, 2005. "Monetary Policy in a Changing International Environment: The Role of Global Capital Flows," NBER Working Papers 11856, National Bureau of Economic Research, Inc.
  5. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," NBER Working Papers 13103, National Bureau of Economic Research, Inc.
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