The U.S. Current Account Deficit: Gradual Correction or Abrupt Adjustment?

Sebastian Edwards

No 12154, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper I use a large multi-country data set to analyze the determinants of abrupt and large "current account reversals." The results from a variance-component probit model indicate that the probability of experiencing a major current account reversal is positively affected by larger current account deficits, lower prices of exports relative to imports, and expansive monetary policies. On the other hand, this probability is lower for more advanced countries, and for countries with flexible exchange rates. An analysis of the marginal effects of current account deficits and of the predicted probability of reversal indicates that both have increased significantly for the U.S. since 1999. However, the level of this probability is still on the low side. I estimate that the predicted probability of a current account reversal in the U.S. has increased from 1.7% in 1999, to 14.9% in 2006.

JEL-codes: F02 F43 O11 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-bec, nep-cba, nep-fmk and nep-ifn
Note: IFM
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Citations: View citations in EconPapers (13)

Published as Edwards, Sebastian, 2006. "The U.S. current account deficit: Gradual correction or abrupt adjustment?," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 629-643, September.

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Journal Article: The U.S. current account deficit: Gradual correction or abrupt adjustment? (2006)
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