TY  - JOUR
AU  - Edwards,Sebastian
TI  - Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11541
PY  - 2005
Y2  - August 2005
UR  - http://www.nber.org/papers/w11541
L1  - http://www.nber.org/papers/w11541.pdf
N1  - Author contact info:
Sebastian Edwards
UCLA Anderson Graduate School of Business
110 Westwood Plaza, Suite C508
Box 951481
Los Angeles, CA 90095-1481
Tel: 310/206-6797
Fax: 310/206-5825
E-Mail: sebastian.edwards@anderson.ucla.edu
M2  - featured in NBER digest on 2005-08-08
AB  - In this paper I analyze the relationship between the U.S. dollar and the U.S. current account. I deal with issues of sustainability, and I discuss the mechanics of current account adjustment. The analysis presented in this paper differs from other work in several respects: First, I emphasis the dynamics of the current account adjustment, going beyond computations of the "required" real depreciation of the dollar to achieve sustainability. I show that even if foreigners' (net) demand for U.S. assets continues to increase significantly, the current account deficit is likely to experience a large decline in the (not too distant) future. Second, I rely on international evidence to explore the likelihood of an abrupt decline in capital flows into the U.S. And third, I analyze the international evidence on current account reversals, to investigate the potential consequences of a (possible) sudden stop of capital flows into the U.S. This analysis suggests that the future adjustment of the U.S. external accounts is likely to result in a significant reduction in growth.
ER  -