The End of Large Current Account Deficits, 1970-2002: Are There Lessons for the United States?

69 Pages Posted: 7 Dec 2005 Last revised: 9 Dec 2005

See all articles by Sebastian Edwards

Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Date Written: October 2005

Abstract

The future of the U.S. current account -- and thus of the U.S. dollar -- depend on whether foreign investors will continue to add U.S. assets to their investment portfolios. However, even under optimistic scenarios, the U.S. current account deficit is likely to go through a significant reversal at some point in time. This adjustment may be as large of 4% to 5% of GDP. In order to have an idea of the possible consequences of this type of adjustment, I have analyzed the international evidence on current account reversals using both non-parametric techniques as well as panel regressions. The results from this empirical investigation indicate that major current account reversals have tended to result in large declines in GDP growth. I also analyze the large U.S. current account adjustment of 1987-1991.

Suggested Citation

Edwards, Sebastian, The End of Large Current Account Deficits, 1970-2002: Are There Lessons for the United States? (October 2005). NBER Working Paper No. w11669. Available at SSRN: https://ssrn.com/abstract=819830

Sebastian Edwards (Contact Author)

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area ( email )

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