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Sterling Implications of a US Current Account Reversal

35 Pages Posted: 26 Sep 2006  

Morten Spange

Bank of England - Monetary Analysis

Pawel Zabczyk

CCBS, Bank of England

Date Written: June 2006

Abstract

This paper investigates the potential implications for sterling of the US current account returning to balance. The analysis is conducted using a three-country model comprising the United Kingdom, the United States and a block that is meant to represent the rest of the world. The main conclusion from our analysis is that the potential implications for sterling of a US current account reversal are highly uncertain - one can derive a wide range of estimates for the potential changes. Estimates of the sterling adjustments are smaller than the implied movements in the dollar and depend heavily on (a) the cause of the US current account adjustment; (b) the assumptions one makes about the associated adjustment of the UK current account deficit; and (c) assumptions about key model parameters.

JEL Classification: F31, F32, F41

Suggested Citation

Spange, Morten and Zabczyk, Pawel, Sterling Implications of a US Current Account Reversal (June 2006). Bank of England Working Paper No. 296. Available at SSRN: https://ssrn.com/abstract=932561 or http://dx.doi.org/10.2139/ssrn.932561

Morten Spange (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Pawel Zabczyk

CCBS, Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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