Title: Is the U.S. current account deficit sustainable?
Subtitle: and if not, how costly is adjustment likely to be?
Description: "In this paper I analyze the relationship between the U.S.  dollar and the U.S. current account.  I deal with issues of sustainability, and I discuss the mechanics of current account adjustment.  The analysis presented in this paper differs from other work in several respects: First, I emphasis the dynamics of the current account adjustment, going beyond computations of the "required" real depreciation of the dollar to achieve sustainability.  I show that even if foreigners' (net) demand for U.S. assets continues to increase significantly, the current account deficit is likely to experience a large decline in the (not too distant) future.  Second, I rely on international evidence to explore the likelihood of an abrupt decline in capital flows into the U.S.  And third, I analyze the international evidence on current account reversals, to investigate the potential consequences of a (possible) sudden stop of capital flows into the U.S.  This analysis suggests that the future adjustment of the U.S. external accounts is likely to result in a significant reduction in growth"--National Bureau of Economic Research web site.
Subjects: Balance of payments, Fiscal policy, Budget deficits
Places: United States