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Perceived Welfare Effects of Current Account Deficit - Evidence from American Economy 1967-2005

  • Sebastian Stolorz

    (University of Oregon)

The paper addresses the question, whether the increasing current account deficit has negative impact on American economy and society. Using data for American economy in years 1967 – 2005, it will be shown that perceived welfare effects, as measured by changes in Consumer Confidence, asymmetrically reflect changes in exports and imports. The provided VAR analysis allowed to filter out potential output and cyclical movements in endogenous factors and to describe the remaining error in terms of external trade volatility. Keeping information on exports and imports as external factors allowed to estimate a structure of the model, where the responsiveness of perceived welfare in respect to simulated changes in current account was studied. The provided analysis shows that opening the economy enhanced observed volatility of the Consumer Confidence, while presence of the current account deficit allowed to obtain superior welfare.

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File URL: http://econwpa.repec.org/eps/it/papers/0512/0512013.pdf
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Paper provided by EconWPA in its series International Trade with number 0512013.

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Length: 37 pages
Date of creation: 15 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpit:0512013
Note: Type of Document - pdf; pages: 37
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  4. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
  5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
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