The US as the "Demander of Last Resort" and its Implications on China's Current Account

Joshua Aizenman () and Yothin Jinjarak

No 14453, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper evaluates the degree to which current account patterns are explained by the variables suggested by the literature, and reflects on possible future patterns. We start with panel regressions explaining the current account of 69 countries during 1981-2006. We identify an asymmetric effect of the US as the "demander of last resort:" a 1% increase in the lagged US current account deficit is associated with 0.5% increase of current account surpluses of countries running surpluses, but with insignificant changes of current account deficits of countries running deficits. Overall, the panel regressions account for not more than 2/3 of the variation. We apply the regression results to assess China's current account over the next six years, projecting a large drop in its account/GDP surpluses.

JEL-codes: F15 F32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-ifn and nep-opm
Date: 2008-10
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