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The Expectations-driven US Current Account

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  • Mathias Hoffmann
  • Michael U Krause
  • Thomas Laubach

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.

Suggested Citation

  • Mathias Hoffmann & Michael U Krause & Thomas Laubach, 2019. "The Expectations-driven US Current Account," The Economic Journal, Royal Economic Society, vol. 129(618), pages 897-924.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:618:p:897-924.
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    File URL: http://hdl.handle.net/10.1111/ecoj.12539
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    Cited by:

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    2. Juan Equiza Goni, 2014. "Sovereign Debt in the U.S. and Growth Expectations," Working Papers ECARES ECARES 2014-25, ULB -- Universite Libre de Bruxelles.
    3. Dibooglu, Sel & Kapounek, Svatopluk, 2021. "The US current account, sustainability, and the international monetary system," Economic Systems, Elsevier, vol. 45(4).
    4. Ivan Jaccard & Frank Smets, 2020. "Structural Asymmetries and Financial Imbalances in the Eurozone," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 73-102, April.
    5. Robert Kollmann, 2015. "Exchange Rates Dynamics with Long-Run Risk and Recursive Preferences," Open Economies Review, Springer, vol. 26(2), pages 175-196, April.
    6. Ivan Jaccard & Frank Smets, 2020. "Structural Asymmetries and Financial Imbalances in the Eurozone," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 73-102, April.
    7. Inagaki, Kazuyuki, 2021. "How are the international capital flows of rapidly aging countries affected by the elderly working longer?," Economic Modelling, Elsevier, vol. 97(C), pages 285-297.
    8. Harrison, Andre & Reed, Robert R., 2023. "Gross capital inflows, the U.S. economy, and the response of the Federal Reserve," Journal of International Money and Finance, Elsevier, vol. 139(C).

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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