The U.S. current account and the dollar
By: Olivier Blanchard, Francesco Giavazzi, Filipa Sa
Contributors: Giavazzi, Francesco; Sa, Filipa; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 05-02; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 05-02.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Number of pages: 36
Other titles: US current account and the dollar; United States current account and the dollar
Description: There are two main forces behind the large U.S. current account deficits. First, an increase in the U.S. demand for foreign goods. Second, an increase in the foreign demand for U.S. assets. Both forces have contributed to steadily increasing current account deficits since the mid-1990s. This increase has been accompanied by a real dollar appreciation until late 2001, and a real depreciation since. The depreciation has accelerated recently, raising the questions of whether and how much more is to come, and if so, against which currencies, the euro, the yen, or the renminbi. Our purpose in this paper is to explore these issues. Our theoretical contribution is to develop a simple portfolio model of exchange rate and current account determination, and to use it to interpret the past and explore alternative scenarios for the future. Our practical conclusions are that substantially more depreciation is to come, surely against the yen and the renminbi, and probably against the euro. Keywords: current account deficit, dollar, depreciation, appreciation, euro, portfolio choice, yen, renminbi. JEL Classifications: E3, F21, F32, F41.
Notes: "January 26, 2005."

Includes bibliographical references (p. 35-36).

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