The Expectations-Driven Us Current Account

36 Pages Posted: 21 Jun 2016

See all articles by Mathias Hoffmann

Mathias Hoffmann

Deutsche Bundesbank

Michael U. Krause

University of Cologne

Thomas Laubach

Federal Reserve Board

Date Written: 2013

Abstract

Since 1991, survey expectations of long-run output growth for the U.S. relative to the rest of the world exhibit a pattern strikingly similar to that of the U.S. current account, and thus also to global imbalances. We show that this finding can to a large extent be rationalized in a two-region stochastic growth model simulated using expected trend growth filtered from observed productivity. In line with the intertemporal approach to the current account, a major part of the buildup of the U.S. current account deficit appears to be driven by the optimal response of households and firms to improved growth prospects.

Keywords: open economy, stochastic trend growth, Kalman filter, news shocks

JEL Classification: F32, E13, E32, D83, O40

Suggested Citation

Hoffmann, Mathias and Krause, Michael U. and Laubach, Thomas, The Expectations-Driven Us Current Account (2013). Bundesbank Discussion Paper No. 10/2013. Available at SSRN: https://ssrn.com/abstract=2796900

Mathias Hoffmann (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael U. Krause

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Thomas Laubach

Federal Reserve Board ( email )

20th & C. St., N.W.
Mailstop 61
Washington, DC 20551
United States
202-452-2715 (Phone)
202-452-3819 (Fax)

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