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G7 Current Account ImbalancesSustainability and Adjustment$
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Richard H. Clarida

Print publication date: 2007

Print ISBN-13: 9780226107264

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226107288.001.0001

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The Unsustainable U.S. Current Account Position Revisited

The Unsustainable U.S. Current Account Position Revisited

Chapter:
(p.339) 9 The Unsustainable U.S. Current Account Position Revisited
Source:
G7 Current Account Imbalances
Author(s):

Maurice Obstfeld

Kenneth Rogoff

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226107288.003.0010

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

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