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The US Dollar and the Trade Deficit: What Accounts for the Late 1990s? *
Author(s) -
Hunt Benjamin,
Rebucci Alessandro
Publication year - 2005
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1468-2362.2005.00165.x
Subject(s) - economics , productivity , balance of trade , liberian dollar , portfolio , exchange rate , us dollar , rest (music) , balance (ability) , monetary economics , persistence (discontinuity) , current account , international economics , macroeconomics , financial economics , finance , medicine , cardiology , physical medicine and rehabilitation , engineering , geotechnical engineering
Based on a version of the IMF's global economy model set up to analyse macroeconomic interdependence between the United States and the rest of the world, this paper asks to what extent accelerating productivity growth in the United States may have contributed to the US real exchange rate appreciation and the trade balance deterioration witnessed in the second half of the 1990s. The paper concludes that productivity is only part of this story. A portfolio preference shift in favour of US assets, possibly triggered by faster productivity growth, and some uncertainty and learning about the persistence of both shocks are needed to match the data more satisfactorily.