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Determinants of the current account balance in the United States

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  • Tuvshintugs Batdelger
  • Magda Kandil

Abstract

This article studies the role of public and private imbalances in the behaviour of the current account balance in the United States in the context of an intertemporal model. The estimation evaluates the effects of public and private imbalances on the dynamics of the current account. Correlation coefficients support the Ricardian equivalence. Higher budget deficit correlates with a reduction in private consumption and an increase in private savings. Government saving does not vary significantly with macroeconomic variables in the short- or in the long-run. In contrast, fluctuations in government investment vary significantly with a number of economic variables in the long- and in the short-run. Accordingly, fluctuations in the budget deficit are likely to be driven by fluctuations in public investment. In contrast to government savings, private savings vary significantly with macro variables in the long- and in the short-run. Fluctuations in private investment appear less evident compared to that in private savings. Overall, fluctuations in the current account balance appear to be more tied to movements in the budget deficit. Nonetheless, fluctuations in the budget deficit are moderated by an increase in private savings and a reduction in private investment, moderating fluctuations in the current account balance.

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  • Tuvshintugs Batdelger & Magda Kandil, 2012. "Determinants of the current account balance in the United States," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 653-669, February.
    • Handle: RePEc:taf:applec:44:y:2012:i:5:p:653-669
    DOI: 10.1080/00036846.2010.518950
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    Cited by:

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    3. Gossé, Jean-Baptiste & Serranito, Francisco, 2014. "Long-run determinants of current accounts in OECD countries: Lessons for intra-European imbalances," Economic Modelling, Elsevier, vol. 38(C), pages 451-462.
    4. Sáez, Antonio José & Prieto, Faustino & Sarabia, José María, 2012. "A two-tail version of the PPS distribution with application to current account balance data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(21), pages 5160-5171.
    5. Köse Nezir & Ünal Emre, 2024. "The Roles of the Terms of Trade and the Real Exchange Rate in the Current Account Balance," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-24.
    6. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, vol. 9(3), pages 1-30, March.
    7. Ali, Amjad & Audi, Marc, 2023. "Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach," MPRA Paper 118173, University Library of Munich, Germany.
    8. Garg, Bhavesh & Prabheesh, K.P., 2017. "Drivers of India’s current account deficits, with implications for ameliorating them," Journal of Asian Economics, Elsevier, vol. 51(C), pages 23-32.
    9. Rihab Bousnina & Foued Badr Gabsi, 2022. "Current Account Balance and Financial Development in MENA Countries: The Role of Institutions," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 109-142, March.
    10. Giuseppe Caivano & Nicola D. Coniglio, 2016. "Long-Run Drivers of Current Account Imbalances in the EU: the Role of Trade Openness," SERIES 03-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised May 2016.

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