Bank of England
NBER Working Papers and Publications
|February 2005||The U.S. Current Account and the Dollar|
with Olivier Blanchard, Francesco Giavazzi: w11137
There are two main forces behind the large U.S. current account deficits. First, an increase in the U.S. demand for foreign goods. Second, an increase in the foreign demand for U.S. assets. Both forces have contributed to steadily increasing current account deficits since the mid--1990s. This increase has been accompanied by a real dollar appreciation until late 2001, and a real depreciation since. The depreciation has accelerated recently, raising the questions of whether and how much more is to come, and if so, against which currencies, the euro, the yen, or the renminbi. Our purpose in this paper is to explore these issues. Our theoretical contribution is to develop a simple portfolio model of exchange rate and current account determination, and to use it to interpret the past and exp...
Published: Blanchard, Oliver, Francesco Giavazzi,and Filipa Sa. "International Investors, the U.S. Current Account, and the Dollar." Brookings Papers on Economic Activity 1 (2005): 1-49.