Chapter

The Unsustainable U.S. Current Account Position Revisited

Maurice Obstfeld and Kenneth Rogoff

in G7 Current Account Imbalances

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226107264
Published online February 2013 | e-ISBN: 9780226107288 | DOI: http://dx.doi.org/10.7208/chicago/9780226107288.003.0010
The Unsustainable U.S. Current Account Position Revisited

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This chapter reveals that when one takes into account the global equilibrium ramifications of an unwinding of the U.S. current account deficit, currently running at nearly 6 percent of gross domestic product (GDP), the potential adjustment of the dollar becomes considerably larger than estimates from previous papers. U.S. current account adjustment entails a larger potential decline in the dollar. It is assumed that labor and capital cannot move freely across sectors in the short run. The model indicates that the U.S. nontraded-goods productivity boom could help explain the widening of the U.S. current account deficit. The exchange rate effects may be massive when U.S. current account adjustment comes. Moreover, further deepening of global capital markets may postpone the day of reckoning.

Keywords: global equilibrium; U.S. current account deficit; gross domestic product; dollar; current account adjustment; labor; capital; exchange rate

Chapter.  15094 words.  Illustrated.

Subjects: Financial Markets

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