Research Discussion Papers, Bank of Finland
Adjustment of the US current account deficit
Abstract: We present a two country DGE model and estimate it using
Bayesian techniques and euro area and US quarterly data for 1977–2004. In
analysing the current accounts we find that a lower US rate of time
preference or a higher dollar risk premium could render the deficit
sustainable, but that these could push the interest rate to the zero bound.
Secondly, we find that fiscal policy is not sufficiently effective to
improve the current account although the zero bound is not hit.
Keywords: current account; zero bound; policy coordination; (follow links to similar papers)
JEL-Codes: E61; F32; (follow links to similar papers)
37 pages, September 12, 2007
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