Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be? / Sebastian Edwards.

Format:

Book

Author/Creator:

Edwards, Sebastian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11541.

NBER working paper series no. w11541

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

In this paper I analyze the relationship between the U.S. dollar and the U.S. current account. I deal with issues of sustainability, and I discuss the mechanics of current account adjustment. The analysis presented in this paper differs from other work in several respects: First, I emphasis the dynamics of the current account adjustment, going beyond computations of the "required" real depreciation of the dollar to achieve sustainability. I show that even if foreigners' (net) demand for U.S. assets continues to increase significantly, the current account deficit is likely to experience a large decline in the (not too distant) future. Second, I rely on international evidence to explore the likelihood of an abrupt decline in capital flows into the U.S. And third, I analyze the international evidence on current account reversals, to investigate the potential consequences of a (possible) sudden stop of capital flows into the U.S. This analysis suggests that the future adjustment of the U.S. external accounts is likely to result in a significant reduction in growth.

Notes:

Print version record

August 2005.