The Expectations-driven US Current Account

Mathias Hoffmann · Michael U. Krause · Thomas Laubach

24 citations0/0 files storedThe Economic Journal

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

During the 1990s and 2000s, survey expectations of long-run output growth for the US relative to the rest of the world were highly correlated with the US current account, and thus, with global imbalances. We show that this finding is, to a large extent, predicted by a two-region stochastic growth model simulated using expected trend growth based on surveys. In line with the intertemporal approach to the current account, a major part of the build-up and subsequent reversal of the US current account deficit appears to be consistent with an optimal response of households and firms to changing growth prospects.

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References

2007Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach 2003An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area 1997Foundations of International Macroeconomics 2002Closing Small Open Economy Models 2007Emerging Market Business Cycles: The Cycle Is the Trend 2005Business cycles in emerging economies: the role of interest rates 2002Solving Linear Rational Expectations Models 2003Measuring the Natural Rate of Interest

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