Three Current Account Balances: A "Semi-Structuralist" Interpretation

29 Pages Posted: 20 Jul 2006

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Date Written: December 2005

Abstract

Three large current account imbalances -- one deficit (the United States) and two surpluses (Japan and the Euro area) -- are subjected to a minimalist structural interpretation. Though simple, this interpretation enables us to assess how much of each of the imbalances require a real exchange rate adjustment. According to the estimates, a large part of the U.S. current account deficit (nearly 2 percentage points of the 2004 deficit of 5 1/2 percent of GDP) will undergo an adjustment process that involves real depreciation in its exchange rate. For Japan, a little more than 1 percentage point (of GDP) of the current account surplus is found to require an exchange rate movement (real appreciation) as the surpluses adjust down. For the Euro area, less than half a percentage point of its current account surplus is found to require an adjustment via real appreciation.

Suggested Citation

Chinn, Menzie David and Lee, Jaewoo, Three Current Account Balances: A "Semi-Structuralist" Interpretation (December 2005). NBER Working Paper No. w11853. Available at SSRN: https://ssrn.com/abstract=872716

Menzie David Chinn (Contact Author)

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
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608-262-7397 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER)

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Jaewoo Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

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