IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/15525.html
   My bibliography  Save this paper

Current Account Fact and Fiction

Author

Listed:
  • David Backus
  • Espen Henriksen
  • Frederic Lambert
  • Christopher Telmer

Abstract

With US trade and current account deficits approaching 6% of GDP, some have argued that the country is "on the comfortable path to ruin" and that the required "adjustment'' may be painful. We suggest instead that things are fine: although national saving is low, the ratios of household and consolidated net worth to GDP remain high. In our view, the most striking features of the world at present are the low rates of investment and growth in some of the richest countries, whose surpluses account for about half of the US deficit. The result is that financial capital is flowing out of countries with low investment and growth and into the US and other fast-growing countries. Oil exporters account for much of the rest.

Suggested Citation

  • David Backus & Espen Henriksen & Frederic Lambert & Christopher Telmer, 2009. "Current Account Fact and Fiction," NBER Working Papers 15525, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15525
    Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w15525.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    2. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    3. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
    4. Charles Engel & John H. Rogers, 2006. "The U.S. current account deficit and the expected share of world output," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    5. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, vol. 8(3), pages 363-397, December.
    6. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2002. "External wealth, the trade balance, and the real exchange rate," European Economic Review, Elsevier, vol. 46(6), pages 1049-1071, June.
    7. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
    8. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387, National Bureau of Economic Research, Inc.
    9. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    10. David Domeij & Martin Flodén, 2006. "Population Aging And International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1013-1032, August.
    11. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, August.
    12. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    13. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    14. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    15. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
    16. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    17. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    18. Ellen R. McGrattan & Edward C. Prescott, 2005. "Expensed and sweat equity," Working Papers 636, Federal Reserve Bank of Minneapolis.
    19. Timothy J. Kehoe & Kim J. Ruhl, 2005. "Is Switzerland in a Great Depression?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 759-775, July.
    20. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February.
    21. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the J-curve revisited," Discussion Paper / Institute for Empirical Macroeconomics 65, Federal Reserve Bank of Minneapolis.
    22. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," Department of Economics, Working Paper Series qt124628cx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    23. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    24. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 1-3.
    25. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
    26. Taylor, Alan M., 2002. "A century of current account dynamics," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 725-748, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barattieri, Alessandro, 2014. "Comparative advantage, service trade, and global imbalances," Journal of International Economics, Elsevier, vol. 92(1), pages 1-13.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    3. Joshua Aizenman, 2015. "Internationalization of the RMB, Capital Market Openness and Financial Reforms in China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 444-460, August.
    4. Jacob, Punnoose & Peersman, Gert, 2013. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Journal of International Economics, Elsevier, vol. 90(2), pages 302-315.
    5. Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports 295, Federal Reserve Bank of New York.
    6. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2006. "Chapter 2: Global Imbalances," EEAG Report on the European Economy, CESifo, vol. 0, pages 50-67, March.
    7. Hoffmann, Mathias, 2013. "What drives China's current account?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 856-883.
    8. Heathcote, Jonathan & Perri, Fabrizio, 2014. "Assessing International Efficiency," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 523-584, Elsevier.
    9. Pascal Towbin, 2013. "Financial Integration And External Sustainability," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(4), pages 375-395, October.
    10. Yongsung Chang & Sun-Bin Kim & Jaewoo Lee, 2013. "Accounting for Global Dispersion of Current Accounts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 477-496, July.
    11. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2010. "Asset prices, exchange rates and the current account," European Economic Review, Elsevier, vol. 54(5), pages 643-658, July.
    12. Mariam Camarero Author-X-Name-Mariam & Josep Lluís Carrión-i-Silvestre & Cecilio Tamarit, 2020. "External imbalances from a GVAR perspective," Working Papers 2005, Department of Applied Economics II, Universidad de Valencia.
    13. Luo, Yulei & Nie, Jun & Young, Eric R., 2012. "Robustness, information–processing constraints, and the current account in small open economies," Journal of International Economics, Elsevier, vol. 88(1), pages 104-120.
    14. Zhang, Ning, 2019. "Country portfolios under global imbalances," European Economic Review, Elsevier, vol. 119(C), pages 302-317.
    15. Duncan, Roberto, 2015. "A threshold model of the US current account," Economic Modelling, Elsevier, vol. 48(C), pages 270-280.
    16. Struck, Clemens C., 2018. "Labor market frictions, investment and capital flows," Economics Letters, Elsevier, vol. 163(C), pages 27-31.
    17. Gnimassoun, Blaise & Coulibaly, Issiaka, 2014. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," Economic Modelling, Elsevier, vol. 40(C), pages 208-226.
    18. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2010. "External imbalances in a monetary union. Does the Lawson doctrine apply to Europe?," Working Papers 10-09, Asociación Española de Economía y Finanzas Internacionales.
    19. Boileau, Martin & Normandin, Michel, 2017. "The price of imported capital and consumption fluctuations in emerging economies," Journal of International Economics, Elsevier, vol. 108(C), pages 67-81.
    20. Clemens C. Struck, 2017. "Labor Market Frictions, Investment and Capital Flows," Working Papers 201729, School of Economics, University College Dublin.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:nbr:nberwo:15525. 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: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.