G7 Current Account ImbalancesSustainability and Adjustment

G7 Current Account ImbalancesSustainability and Adjustment

Richard H. Clarida

Print publication date: 2013

ISBN: 9780226107264

Publisher: University of Chicago Press

Abstract

The current account deficit of the United States is more than six percent of its gross domestic product—an all-time high. And the rest of the world, including other G7 countries such as Japan and Germany, must collectively run current account surpluses to finance this deficit. How long can such unevenness between imports and exports be sustained, and what form might their eventual reconciliation take? Putting forth scenarios ranging from a gradual correction to a crash landing for the dollar, this book brings together economists from around the globe to consider the origins, status, and future of those disparities. Its collaborators here examine the role of the bursting of the dot-com bubble, the history of previous episodes of current account adjustments, and the possibility of the Euro surpassing the dollar as the leading international reserve currency. Although there are areas of broad agreement—that the imbalances will ultimately decline and that currency revaluations will be part of the solution—many areas of contention remain regarding both the dangers of imbalances and the possible forms of adjustment.

Table of Contents

Introduction

Richard H. Clarida

I Origins of G7 Current Account Imbalances

1 From World Banker to World Venture Capitalist

Pierre-Olivier Gourinchas and Hélène Rey

2 A Global Perspective on External Positions

Philip R. Lane and Gian Maria Milesi-Ferretti

3 Direct Investment, Rising Real Wages, and the Absorption of Excess Labor in the Periphery

Michael P. Dooley, David Folkerts-Landau, and Peter Garber

II Empirical Studies of G7 Current Account and Exchange Rate Adjustment

4 Current Account Deficits in Industrial Countries

Caroline Freund and Frank Warnock

5 Are There Thresholds of Current Account Adjustment in the G7?

Richard H. Clarida, Manuela Goretti, and Mark P. Taylor

6 Current Account Reversals

Muge Adalet and Barry Eichengreen

7 Understanding the U.S. Trade Deficit

Catherine L. Mann and Katharina Plück

III Theoretical Perspectives on Current Account Sustainability and Adjustment

10 Smooth Landing or Crash?

Hamid Faruqee, Douglas Laxton, Dirk Muir, and Paolo A. Pesenti