The US as the "Demander of Last Resort" and its Implications on China's Current Account

Joshua Aizenman, Yothin Jinjarak

NBER Working Paper No. 14453
Issued in October 2008
NBER Program(s):International Finance and Macroeconomics, International Trade and Investment

This paper evaluates the degree to which current account patterns are explained by the variables suggested by the literature, and reflects on possible future patterns. We start with panel regressions explaining the current account of 69 countries during 1981-2006. We identify an asymmetric effect of the US as the "demander of last resort:" a 1% increase in the lagged US current account deficit is associated with 0.5% increase of current account surpluses of countries running surpluses, but with insignificant changes of current account deficits of countries running deficits. Overall, the panel regressions account for not more than 2/3 of the variation. We apply the regression results to assess China's current account over the next six years, projecting a large drop in its account/GDP surpluses.

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Document Object Identifier (DOI): 10.3386/w14453

Published: THE USA AS THE ‘DEMANDER OF LAST RESORT’ AND THE IMPLICATIONS FOR CHINA'S CURRENT ACCOUNT Joshua Aizenman1, Yothin Jinjarak2,* Article first published online: 27 JUL 2009 DOI: 10.1111/j.1468-0106.2009.00450.x © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Asia Pty Ltd Issue Pacific Economic Review Pacific Economic Review Volume 14, Issue 3, pages 426–442, August 2009

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