Fundamentals at Odds? The U.S. Current Account Deficit and The Dollar
November 1, 2008
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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.
Subject: Current account balance, Current account deficits, External position, Real effective exchange rates, Trade balance
Keywords: current account, dollar, exchange rate, rate of return, WP
Pages:
29
Volume:
2008
DOI:
Issue:
260
Series:
Working Paper No. 2008/260
Stock No:
WPIEA2008260
ISBN:
9781451871180
ISSN:
1018-5941
