The Expectations-driven US Current Account. Issue 618 (2nd August 2017) - Hoffmann, Mathias
Abstract: 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.