Three Current Account Balances: A "Semi-Structuralist" Interpretation

Menzie D. Chinn, Jaewoo Lee

NBER Working Paper No. 11853
Issued in December 2005
NBER Program(s):   IFM

Three large current account imbalances -- one deficit (the United States) and two surpluses (Japan and the Euro area) -- are subjected to a minimalist structural interpretation. Though simple, this interpretation enables us to assess how much of each of the imbalances require a real exchange rate adjustment. According to the estimates, a large part of the U.S. current account deficit (nearly 2 percentage points of the 2004 deficit of 5 1/2 percent of GDP) will undergo an adjustment process that involves real depreciation in its exchange rate. For Japan, a little more than 1 percentage point (of GDP) of the current account surplus is found to require an exchange rate movement (real appreciation) as the surpluses adjust down. For the Euro area, less than half a percentage point of its current account surplus is found to require an adjustment via real appreciation.

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Published: Chinn, Menzie D. & Lee, Jaewoo, 2009. "Three current account balances: A "Semi-Structuralist" interpretation," Japan and the World Economy, Elsevier, vol. 21(2), pages 202-212, March.

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