U.S. External Adjustment: Is it Disorderly? Is it Unique? Will it Disrupt the Rest of the World?

Contemporary Economic Policy, Vol. 27, Issue 2, pp. 265-292, April 2009

28 Pages Posted: 16 Jun 2009

See all articles by Steven B. Kamin

Steven B. Kamin

affiliation not provided to SSRN

Trevor A. Reeve

Board of Governors of the Federal Reserve System

Nathan Sheets

Board of Governors of the Federal Reserve System

Abstract

This article focuses on the historical experience with U.S. external adjustment, that is, narrowings of the trade deficit. Using data from the past 35 years, we compare economic performance in episodes during which the U.S. trade balance declined against episodes during which it rose. We find that trade balance adjustment has been generally benign: U.S. real gross domestic product growth tended to fall but not to a statistically significant extent; housing construction slumped; inflation generally rose modestly; and although nominal interest rates tended to rise, real interest rates fell. The article then compares these outcomes to those in foreign industrial economies. We find that the economic performance of the United States during periods of external adjustment is remarkably similar to the foreign experience. Finally, we also examine the performance of the foreign industrial economies during the periods when the U.S. trade deficit widened and narrowed. Contrary to concerns that U.S. adjustment will prove injurious to foreign economies, our analysis suggests that the foreign economies fared reasonably well during past periods when the U.S. trade deficit narrowed.

JEL Classification: F32, F41

Suggested Citation

Kamin, Steven B. and Reeve, Trevor A. and Sheets, Nathan, U.S. External Adjustment: Is it Disorderly? Is it Unique? Will it Disrupt the Rest of the World?. Contemporary Economic Policy, Vol. 27, Issue 2, pp. 265-292, April 2009, Available at SSRN: https://ssrn.com/abstract=1393541 or http://dx.doi.org/10.1111/j.1465-7287.2008.00139.x

Steven B. Kamin (Contact Author)

affiliation not provided to SSRN

No Address Available

Trevor A. Reeve

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nathan Sheets

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3819 (Phone)
202-736-5638 (Fax)

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