US Current Account Deficit and Exchange Rate Tax

De Lima, Gabrielle and Moura, Guilherme and Meurer, Roberto and Da Silva, Sergio (2007): US Current Account Deficit and Exchange Rate Tax.

Abstract

We examine the relationship between the US current account deficit, the international value of the dollar, and the dollar reserves of foreign central banks. We find that the international value of the dollar impacts the US current account and also that dollar depreciations are accompanied by reductions in the inflow of foreign reserves. The inflow reductions are indicative that the US levies an exchange rate tax on foreigners because the foreign stock of reserves loses value.

• Item Type: MPRA Paper
• Institution: Federal University of Santa Catarina
• Language: English
• Keywords: US current account; exchange rate tax
• Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission

References

Bernanke, B. S. (2005) The global saving glut and the US current account deficit, The Sandridge Lecture, Virginia Association of Economics, 10 March 2005. Available on http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm.

Blanchard, O., F. Giavazzi, and F. Sa (2005) The US current account and the dollar, NBER Working Paper, 11137.

DeLong, J. B. (2005) Some simple analytics for a “hard landing”, University of California at Berkely Working Paper.

Edwards, S. (2005) Is the U.S. current account deficit sustainable? And if not, how costly is adjustment likely to be? NBER Working Paper, 11541.

Freund, C. L. (2000) Current account adjustment in industrialized countries, Board of Governors of the Federal Reserve System International Finance Discussion Paper, 692. Available on http://www.federalreserve.gov/pubs/ifdp/2000/692/ifdp692.pdf

Higgins, M., and T. Klitgaard (2004) Reserve accumulation: implications for global capital flows and financial markets, Federal Reserve Bank of New York Current Issues in Economics and Finance, v. 10, n. 10.

Labonte, M. (2005) Is the US current account deficit sustainable? CRS Report for Congress.

Lane, P., and G. M. Milesi-Ferretti (2005a) Financial globalization and exchange rates, IMF Working Paper, 053.

Lane, P., and G. M. Milesi-Ferretti (2005b) A global perspective on external positions, NBER Working Paper, 11589.

Obstfeld, M., and K. Rogoff (2004) The unsustainable US current account position revisited, NBER Working Paper, 10869.

Roubini, N., and B. Setser (2004) The US as a net debtor: the sustainability of the US external imbalances. Available on http://pages.stern.nyu.edu/~nroubini/papers/Roubini-Setser-US-External-Imbalances.pdf.

Truman, E. (2005) Postponing global adjustment, Institute for International Economics Working Paper, 056.