The U.S. Current Account and the Dollar / Olivier Blanchard, Francesco Giavazzi, Filipa Sa.

Format:

Book

Author/Creator:

Blanchard, Olivier.

Contributor:

National Bureau of Economic Research.

Giavazzi, Francesco.

Sa, Filipa.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11137.

NBER working paper series no. w11137

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

There are two main forces behind the large U.S. current account deficits. First, an increase in the U.S. demand for foreign goods. Second, an increase in the foreign demand for U.S. assets. Both forces have contributed to steadily increasing current account deficits since the mid--1990s. This increase has been accompanied by a real dollar appreciation until late 2001, and a real depreciation since. The depreciation has accelerated recently, raising the questions of whether and how much more is to come, and if so, against which currencies, the euro, the yen, or the renminbi. Our purpose in this paper is to explore these issues. Our theoretical contribution is to develop a simple portfolio model of exchange rate and current account determination, and to use it to interpret the past and explore alternative scenarios for the future. Our practical conclusions are that substantially more depreciation is to come, surely against the yen and the renminbi, and probably against the euro.

Notes:

Print version record

February 2005.