The Sustainability of the U.S. Current Account Deficit: Revisiting Mann's Rule

Lizardo Radhames A () and Andre Mollick ()
Additional contact information
Lizardo Radhames A: Southwestern Adventist University

Global Economy Journal, 2010, vol. 9, issue 4, 21

Abstract: Using quarterly data from 1973 to 2008, we provide evidence that current account (CA) deficits exceeding 4.2% of GDP ("Mann's rule") do have a significant lowering effect on the U.S. dollar value against major currencies. Controlling for inflation, public debt, and a broad trade weighted index, excessive CA deficits have a negative long-run impact on the USD. Along the transition path, much faster speeds of adjustment to long-run equilibrium are found when current account deficits in excess of Mann's rule are considered: 20% of the deviations from the long-run equilibrium are corrected in a month against 8% or 9% without Mann's rule. This suggests that excessive values of the CA deficit are "priced in" in international foreign exchange markets. Contrary to earlier evidence in favor of CA sustainability, we conjecture that economic conditions have made investors more sensitive to bad news for the U.S. dollar.

Keywords: current account deficits; exchange rates; Mann’s rule; U.S. dollar (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2202/1524-5861.1532 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:glecon:v:9:y:2010:i:4:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/gej/html

DOI: 10.2202/1524-5861.1532

Access Statistics for this article

Global Economy Journal is currently edited by Jannett Highfill

More articles in Global Economy Journal from De Gruyter
Bibliographic data for series maintained by Peter Golla ().