Fundamentals at Odds? The U.S. Current Account Deficit and The Dollar

Author/Editor: Milesi-Ferretti, Gian Maria
Publication Date: November 01, 2008
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The real effective exchange rate of the dollar is close to its minimum level for the past 4decades (as of September 2008). At the same time, however, the U.S. trade and currentaccount deficits remain large and, absent a significant correction in coming years, wouldcontribute to a further accumulation of U.S. external liabilities. The paper discusses thetension between these two aspects of the dollar assessment, and what factors can helpreconcile them. It focuses in particular on the terms of trade, adjustment lags, andmeasurement issues related to both the real effective exchange rate and the current accountbalance.
Series: Working Paper No. 08/260
Subject(s): Current account deficits | United States | Real effective exchange rates | Terms of trade | Current account balances | Adjustment process

Author's Keyword(s): Current account | U.S. dollar | real effective exchange rate
Publication Date: November 01, 2008
Format: Paper
Stock No: WPIEA2008260 Pages: 29
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