Implications of the U.S. current account deficit
Abstract: In 1988, the United States recorded a current account deficit of about $135 billion. The consensus forecast seems to be for little change in the current account in the near term. In this paper, the implications of the U.S. current account deficit and of the consequent buildup in U.S. external debt are examined. The analytical framework for thinking about the U.S. current account is first surveyed, and the results from the empirical literature on the causes of the deficits in the 1980s are then reported. The sustainability of the U.S. external position is discussed next. It is concluded that, at some point, the U.S. trade deficit has to be closed, but that it is conceivable that the U.S. current account balance could remain substantially negative. How the trade gap might be closed is addressed in the final section of the paper.
File(s): File format is text/html http://www.federalreserve.gov/pubs/ifdp/1989/350/default.htm
File(s): File format is application/pdf http://www.federalreserve.gov/pubs/ifdp/1989/350/ifdp350.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 1989