The Expectations-driven US Current Account


  • We thank the editor and three anonymous referees for comments and suggestions that substantially improved this article. We also thank Toni Braun, Dale Henderson, Heinz Herrmann, Robert Kollmann, Eric Leeper, Wolfgang Lemke, Thomas Lubik, Enrique Mendoza, Gernot Müller, Franck Portier, Stephanie Schmitt-Grohé, Lars Svensson, Mathias Trabandt, Alexander Wolman, and participants of the Bundesbank Workshop on Global Imbalances and the Crisis, the Bundesbank Spring Conference 2010, the SCE/CEF 2010 Conference in London, the SEEK/CEPR 2012 Workshop in Mannheim, the EEA 2012 Meetings in Malaga, and seminar participants at the Sveriges Riksbank, the Federal Reserve Bank of Richmond, Österreichische Nationalbank and at the universities of Würzburg, Bonn, Münster, and Giessen for useful comments and discussions. Most of this research was completed while Laubach was at Goethe University Frankfurt and research professor at the Bundesbank. He gratefully acknowledges the hospitality and financial support of the Bundesbank during that time. The views expressed in this article are solely those of the authors and do not necessarily reflect those of the Deutsche Bundesbank, the Board of Governors of the Federal Reserve System or the staff of either institution.


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.