 The role of savings and investment in balancing the current account: some empirical evidence from the United StatesNew England Economic Review, 2000, issue Jul, 3-14 Abstract: Current account deficits ultimately reflect a disparity between a country's national savings and investment. As such, the issue of how current account balance is achieved in practice can be viewed in terms of whether it is savings or investment that adjusts to an external deficit. In this article, the author examines empirically how savings and investment have responded to current account imbalances in the United States over the past 40 years. The main finding is that, on average, investment was largely responsible for rebalancing the current account in the long run. The finding that investment has borne the largest fraction of the external adjustment conforms with the view that, in the long run, the national savings rate constrains a country's rate of investment. Thus, in a situation with outstanding net external debt, low levels of national savings ultimately imply low levels of domestic investment. To the extent that one views net additions of capital as essential for a country's future growth prospects, low savings may signify a reduction in future standards of living. Keywords: Saving; and; investment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbne:y:2000:i:jul:p:3-14 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in New England Economic Review from Federal Reserve Bank of Boston Contact information at EDIRC. |
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