Accounting for U.S. Current Account Deficits: An Empirical Investigation
This paper investigates the relationship between the U.S. current account deficit and a number of macroeconomic variables including government spending, budget balance, productivity, domestic and foreign income, real interest rates, and terms of trade. Implications of the conventional "twin deficit" and the dynamic optimizing approaches are tested using a Vector Error Correction Model. Innovation accounting results indicate that macroeconomic variables explain the current account reasonably well, and the evidence seems to support the conventional approach where budget deficits and increases in the real interest rates are associated with curent account deficits.
|Date of creation:||22 Feb 1995|
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