The Expectations-Driven U.S. Current Account

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  • This article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to differences between this version and the Version of Record. Please cite this article as doi: 10.1111/ecoj.12539

Corresponding author: Mathias Hoffmann, Research Centre, Deutsche Bundesbank, 60431 Frank-furt/Main, Germany. Email: mathias.hoffmann@bundesbank.de.

Abstract

During the 1990s and 2000s, survey expectations of long-run output growth for the U.S. relative to the rest of the world were highly correlated with the U.S. 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 buildup and subsequent reversal of the U.S. current account de.cit appears to be consistent with an optimal response of households and firms to changing growth prospects.

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