IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/67177.html
   My bibliography  Save this paper

Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates

Author

Listed:
  • Harashima, Taiji

Abstract

Under floating exchange rates, there is a mechanism that generates persistent current account imbalances at a competitively achieved steady state. Even if preferences are heterogeneous, sustainable heterogeneity in which all optimality conditions of all heterogeneous households are satisfied can be achieved if relatively advantaged households do not behave unilaterally. Even if households of a relatively advantaged country behave unilaterally, households in less advantaged countries can counter the unilateral behavior under floating exchange rates and achieve optimality even with persistent current account surpluses or deficits. The observed persistent current account imbalances in many countries in recent decades are shown to be basically consistent with the predictions of this model.

Suggested Citation

  • Harashima, Taiji, 2015. "Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates," MPRA Paper 67177, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:67177
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/67177/1/MPRA_paper_67177.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable US Current Account Position Revisited," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376, National Bureau of Economic Research, Inc.
    3. 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.
    4. Jack L. Hervey & Loula S. Merkel, 2000. "A record current account deficit: causes and implications," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q IV), pages 2-13.
    5. Harashima, Taiji, 2015. "A Way Out of the Euro Crisis: Fiscal Transfers Are Indispensable for Sustainability in a Union with Heterogeneous Members," MPRA Paper 63025, University Library of Munich, Germany.
    6. 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.
    7. Harashima, Taiji, 2010. "An Asymptotically Non-Scale Endogenous Growth Model," MPRA Paper 26025, University Library of Munich, Germany.
    8. Taiji Harashima, 2005. "Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits," International Trade 0502001, University Library of Munich, Germany, revised 20 Apr 2005.
    9. Ghiglino, Christian, 2002. "Introduction to a General Equilibrium Approach to Economic Growth," Journal of Economic Theory, Elsevier, vol. 105(1), pages 1-17, July.
    10. Farmer, Roger E.A. & Lahiri, Amartya, 2005. "Recursive preferences and balanced growth," Journal of Economic Theory, Elsevier, vol. 125(1), pages 61-77, November.
    11. Harashima, Taiji, 2011. "A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area," MPRA Paper 28121, University Library of Munich, Germany.
    12. Richard N. Cooper, 2008. "Global Imbalances: Globalization, Demography, and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 93-112, Summer.
    13. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
    14. Jack L. Hervey & Michael A. Kouparitsas, 2000. "Should we be concerned about the current account?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Apr.
    15. Harashima, Taiji, 2009. "Trade Liberalization and Heterogeneous Rates of Time Preference across Countries: A Possibility of Trade Deficits with China," MPRA Paper 19386, University Library of Munich, Germany.
    16. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 375-382.
    17. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
    18. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
    19. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    20. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    21. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    22. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    23. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 211-288.
    24. Harashima, Taiji, 2009. "A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element," MPRA Paper 15508, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harashima, Taiji, 2021. "The Root Cause of Sovereign Default," MPRA Paper 110010, University Library of Munich, Germany.

    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. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    2. Harashima, Taiji, 2014. "The Representative Household Assumption Requires sustainable Heterogeneity in Dynamic Models," MPRA Paper 57520, University Library of Munich, Germany.
    3. Harashima, Taiji, 2016. "Live and Let Live: Sustainable Heterogeneity Will Generally Prevail," MPRA Paper 71887, University Library of Munich, Germany.
    4. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    5. Taiji HARASHIMA, 2014. "Sustainable Heterogeneity In Exogenous Growth Models. The Socially Optimal Distribution By Government’S Intervention," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 5(1), pages 73-100.
    6. Harashima, Taiji, 2015. "A Way Out of the Euro Crisis: Fiscal Transfers Are Indispensable for Sustainability in a Union with Heterogeneous Members," MPRA Paper 63025, University Library of Munich, Germany.
    7. Harashima, Taiji, 2011. "A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area," MPRA Paper 28121, University Library of Munich, Germany.
    8. Engel, Charles & Rogers, John H., 2006. "The U.S. current account deficit and the expected share of world output," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 1063-1093, July.
    9. Harashima, Taiji, 2009. "Trade Liberalization and Heterogeneous Rates of Time Preference across Countries: A Possibility of Trade Deficits with China," MPRA Paper 19386, University Library of Munich, Germany.
    10. Arslan, Yavuz & Kılınç, Mustafa & Turhan, M. İbrahim, 2015. "Global imbalances, current account rebalancing and exchange rate adjustments," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 324-341.
    11. Taiji HARASHIMA, 2016. "A Theory Of Deflation: Can Expectations Be Influenced By A Central Bank?," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 7(2), pages 98-145.
    12. Harashima, Taiji, 2017. "A Theory on the Economic Impacts of Immigration," MPRA Paper 78821, University Library of Munich, Germany.
    13. Sauré, Philip, 2017. "Time-intensive R&D and unbalanced trade," European Economic Review, Elsevier, vol. 91(C), pages 229-244.
    14. Harashima, Taiji, 2019. "The Correlation between Time Preference and Incomes Is Spurious: They Are Bridged by Fluid Intelligence," MPRA Paper 96756, University Library of Munich, Germany.
    15. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
    16. Gian Maria Milesi‐Ferretti, 2008. "Fundamentals at Odds? The US Current Account Deficit and Dollar," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(3), pages 259-281, November.
    17. Kirill Borissov & Stéphane Lambrecht, 2009. "Growth and distribution in an AK-model with endogenous impatience," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(1), pages 93-112, April.
    18. Harashima, Taiji, 2023. "Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path," MPRA Paper 119391, University Library of Munich, Germany.
    19. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2013. "Varieties and the transfer problem," Journal of International Economics, Elsevier, vol. 89(1), pages 1-12.
    20. Edwards, Sebastian, 2006. "The U.S. current account deficit: Gradual correction or abrupt adjustment?," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 629-643, September.

    More about this item

    Keywords

    Current account imbalance; Floating exchange rate; Heterogeneity;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    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:pra:mprapa:67177. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.