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Accounting for U.S. Current Account Deficits: An Empirical Investigation

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  • Selahattin Dibooglu

    (Southern Illinois University at Carbondale)

Abstract

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.

Suggested Citation

  • Selahattin Dibooglu, 1995. "Accounting for U.S. Current Account Deficits: An Empirical Investigation," International Finance 9502003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:9502003
    Note: The paper is a binary WordPerfect 5.1 file submitted via FTP. The document was prepared on a 486 IBM-compatible for printing on a LaserJet 4M. The author reports that the figures are not with the paper. Readers interested in receiving the figures should e-mail the author - sdibo at siucvmb.siu.edu . This paper was presented at the 64th Annual Conference of the
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    References listed on IDEAS

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    3. Makin, Anthony J. & Narayan, Paresh Kumar & Narayan, Seema, 2014. "What expenditure does Anglosphere foreign borrowing fund?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 63-78.
    4. Herrmann, Sabine & Jochem, Axel, 2005. "Determinants of current account developments in the central and east European EU member states - consequences for the enlargement of the euro area," Discussion Paper Series 1: Economic Studies 2005,32, Deutsche Bundesbank.
    5. Kevin Grier & Haichun Ye, 2009. "Twin Sons Of Different Mothers: The Long And The Short Of The Twin Deficits Debate," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 625-638, October.
    6. Atrayee Ghosh Roy & Hendrik Van den Berg, 2009. "Budget deficits and U.S. economic growth," Economics Bulletin, AccessEcon, vol. 29(4), pages 3015-3030.
    7. Tosun, M. Umur & Iyidogan, Pelin Varol & Telatar, Erdinç, 2014. "The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 141-160, June.
    8. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries," Economic Modelling, Elsevier, vol. 31(C), pages 502-510.
    9. Garg, Bhavesh & Prabheesh, K.P., 2017. "Drivers of India’s current account deficits, with implications for ameliorating them," Journal of Asian Economics, Elsevier, vol. 51(C), pages 23-32.
    10. Ahmad, Ahmad Hassan & Aworinde, Olalekan Bashir & Martin, Christopher, 2015. "Threshold cointegration and the short-run dynamics of twin deficit hypothesis in African countries," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 80-91.
    11. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
    12. Anthony Makin & Paresh Narayan, 2013. "Re-examining the “twin deficits” hypothesis: evidence from Australia," Empirical Economics, Springer, vol. 45(2), pages 817-829, October.
    13. Seema Wati Narayan, 2020. "Asian Current Account Balances And Spillovers From A Foreign Country, A Region And The United States," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(1), pages 1-24, April.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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