Working Paper: NBER ID: w11669
Authors: Sebastian Edwards
Abstract: The future of the U.S. current account -- and thus of the U.S. dollar -- depend on whether foreign investors will continue to add U.S. assets to their investment portfolios. However, even under optimistic scenarios, the U.S. current account deficit is likely to go through a significant reversal at some point in time. This adjustment may be as large of 4% to 5% of GDP. In order to have an idea of the possible consequences of this type of adjustment, I have analyzed the international evidence on current account reversals using both non-parametric techniques as well as panel regressions. The results from this empirical investigation indicate that major current account reversals have tended to result in large declines in GDP growth. I also analyze the large U.S. current account adjustment of 1987-1991.
Keywords: No keywords provided
JEL Codes: F02; F43; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current account reversal (F32) | GDP growth (O49) |
| current account reversal (F32) | inflation (E31) |
| current account reversal (F32) | interest rates (E43) |
| current account reversal (F32) | exchange rate depreciation (F31) |