Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates

Harashima, Taiji (2015): Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates.

Abstract

Under floating exchange rates, there is a mechanism that generates persistent current account imbalances at a competitively achieved steady state. Even if preferences are heterogeneous, sustainable heterogeneity in which all optimality conditions of all heterogeneous households are satisfied can be achieved if relatively advantaged households do not behave unilaterally. Even if households of a relatively advantaged country behave unilaterally, households in less advantaged countries can counter the unilateral behavior under floating exchange rates and achieve optimality even with persistent current account surpluses or deficits. The observed persistent current account imbalances in many countries in recent decades are shown to be basically consistent with the predictions of this model.

• Item Type: MPRA Paper
• Language: English
• Keywords: Current account imbalance; Floating exchange rate; Heterogeneity
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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