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Adjustment of the US current account deficit

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  • Kortelainen, Mika

Abstract

We present a two country DGE model and estimate it using Bayesian techniques and euro area and US quarterly data for 1977 2004. In analysing the current accounts we find that a lower US rate of time preference or a higher dollar risk premium could render the deficit sustainable, but that these could push the interest rate to the zero bound. Secondly, we find that fiscal policy is not sufficiently effective to improve the current account although the zero bound is not hit.

Suggested Citation

  • Kortelainen, Mika, 2007. "Adjustment of the US current account deficit," Bank of Finland Research Discussion Papers 9/2007, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2007_009
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    More about this item

    Keywords

    current account; zero bound; policy coordination;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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