*For helpful discussions and comments, the authors wish to thank the editors (Benn Steil and Fabio Ghironi) and an anonymous referee, and Tam Bayoumi, Fabio Canova, Matthew Canzoneri, Giancarlo Corsetti, Margarida Duarte, Hali Edison, Charles Engel, Chris Erceg, Jordi Galí, Chris Gust, Luca Guerrieri, Doug Laxton, Jaewoo Lee, Paolo Pesenti, Ken Rogoff, and seminar participants at the Bank of Canada, Bank of Italy, Georgetown University, George Washington University, IGIER-Bocconi University, the IMF, the 2003 Summer Meeting of the North American Econometric Society, and the Council of Foreign Relations Workshop ‘New Policy Thinking in Macroeconomics’. The authors also thank Susanna Mursula for outstanding research assistance. Remaining errors are of the authors. This is a revised version of IMF WP 03/194. The views expressed here are those of the authors and do not necessarily reflect the position of the IMF.
1468-2362/asset/INFI_left.gif?v=1&s=aad9d29f454d34dfb04d28905af5aeb5461f97fc)
The US Dollar and the Trade Deficit: What Accounts for the Late 1990s?†
Article first published online: 21 DEC 2005
DOI: 10.1111/j.1468-2362.2005.00165.x
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How to Cite
Hunt, B. and Rebucci, A. (2005), The US Dollar and the Trade Deficit: What Accounts for the Late 1990s?. International Finance, 8: 399–434. doi: 10.1111/j.1468-2362.2005.00165.x
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Publication History
- Issue published online: 21 DEC 2005
- Article first published online: 21 DEC 2005
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Abstract
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.