NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Caroline Freund

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Working Papers

December 2005Current Account Deficits in Industrial Countries: The Bigger They are, the Harder They Fall?
with Frank Warnock: w11823
There are a number of worrisome features of the U.S. current account deficit. In particular, its size and persistence, the extent to which it is financing consumption as opposed to investment, and the reliance on debt inflows raise concerns about the likelihood of a sharp adjustment. We examine episodes of current account adjustment in industrial countries to assess the validity of these concerns. Our main findings are (i) larger deficits take longer to adjust and are associated with significantly slower income growth (relative to trend) during the current account recovery than smaller deficits, (ii) consumption-driven current account deficits involve significantly larger depreciations than deficits financing investment, and (iii) there is little evidence that deficits in economies that ru...

Published: Current Account Deficits in Industrial Countries: The Bigger They Are, The Harder They Fall?, Caroline Freund, Frank Warnock. in G7 Current Account Imbalances: Sustainability and Adjustment, Clarida. 2007

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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