Fundamentals at Odds? The US Current Account Deficit and Dollar

23 Pages Posted: 17 Jan 2009

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Abstract

In mid-2008, the real effective exchange rate (REER) of the dollar was close to its minimum level for the past four decades. At the same time, however, the US trade and current account deficits remain large and, absent a significant correction in coming years, would contribute to a further accumulation of US external liabilities. The paper discusses the tension between these two aspects of the dollar assessment, and what factors can help to reconcile them. It focuses in particular on the terms of trade, adjustment lags and measurement issues related to both the REER and the current account balance.

Suggested Citation

Milesi-Ferretti, Gian Maria, Fundamentals at Odds? The US Current Account Deficit and Dollar. Economic Notes, Vol. 37, Issue 3, pp. 259-281, November 2008. Available at SSRN: https://ssrn.com/abstract=1327368 or http://dx.doi.org/10.1111/j.1468-0300.2008.00204.x

Gian Maria Milesi-Ferretti (Contact Author)

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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