Reprint of: The dollar and the current account deficit: How much should we worry?

Michael Mussa

Journal of Policy Modeling, 2012, vol. 34, issue 4, 579-584

Abstract: The U.S. current account deficit is unsustainable and will need to fall by half as a share of GDP in coming years. The adjustment process will necessarily involve (1) substantial further real effective depreciation of the U.S. dollar, (2) slowing of U.S. demand growth below potential output growth, and (3) acceleration of demand growth relative to output growth in the rest of the world. Adjustment is likely to be reasonably orderly, with only modest risks of a “dollar crash”. Policy, including more aggressive fiscal consolidation in the U.S. and more rapid appreciation of key Asian currencies, can help assure orderly adjustment.

Keywords: Unsustainable current account deficit; Real effective exchange rate depreciation; Demand growth relative to output growth; Dollar crash (search for similar items in EconPapers)
JEL-codes: F30 F31 F32 F40 F41 F42 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:34:y:2012:i:4:p:579-584

DOI: 10.1016/j.jpolmod.2012.05.014

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