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Federal Reserve Bank of Chicago
Economic Perspectives
A record current account deficit: causes and implications
Jack L. Hervey
Loula S. Merkel

The U.S. current account deficit was at a record level in 1999 and is expected to increase further in 2000. How large can this deficit get? Will an eventual adjustment in the deficit place the U.S. economy at risk? This article examines three arguments often put forth to explain the increase in the deficit--a consumption boom, the U.S. as a safe haven for short-term foreign capital and technological change affecting the U.S. economy. The authors find the strongest evidence in support of technological change and suggest why, under these conditions, an economic adjustment to the deficit need not to have as adverse an impact as some observes fear.

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Jack L. Hervey & Loula S. Merkel, "A record current account deficit: causes and implications" , Federal Reserve Bank of Chicago, Economic Perspectives, issue Q IV, pages 2-13, 2000.
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Keywords: Deficit financing ; Economic conditions - United States
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