Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Topic 1: Current account determination Balance of payments accounting FRBNY article, June 2004 BEA international statistics (www.bea.gov) FRB Bulletin, May 2003 Any intermediate macroeconomics textbook Net external liabilities Current account deficits cumulate to net external liabilities See www.bea.gov/bea/newsrel/intinvnewsrelease.htm Focus on gross and net positions Net International Investment Position of the United States at Year end, 1989 – 2007 See: http://www.bea.gov/international/xls/intinv07_t2.xls U.S. NIIP 2007 NIIP at year end: about -$2.5 trillion (with FDI at current cost) US-owned assets abroad $17.6 trillion Foreign securities $6.6 trillion US FDI abroad $3.93 trillion Bank claims $3.8 trillion Foreign-owned assets in US: $20.1 trillion Revaluation effects Price changes: Greater share of FDI and portfolio equities in US assets than in US liabilities Exchange rate changes: US liabilities largely denominated/priced in dollars, while US assets mostly denominated in foreign currency Net liabilities decline when dollar depreciates Exchange rate changes About two-thirds of US assets denominated in foreign currency 10 percent depreciation in dollar $1200 billion dollar value of gross US assets Equivalent to roughly 7 percent of GDP Lowers net payments on NIIP by 0.28 percent of GDP (.04 7%) Factors driving global imbalances Two main views “Trade-flows” versus “Capital-flows” view Does the trade flows drive capital flows or vice-versa? Trade-flows view Elasticities approach to trade See: Hooper, Johnson, and Marquez (1998), Chinn (2005) Idea: Relate trade flows to relative prices and importer income Income: GDP or domestic demand Relative prices: real trade-weighted (effective) exchange rate Trade equations All variables in logs Xt = Y*t + 1Rt-1 + 2Rt-2 Mt = Yt + 1Rt-1 + 2Rt-2 where: X = real exports M = real (non-oil) imports Y = Domestic income; Y*= Foreign income R = Real effective exchange rate Source: Chinn 2005 Empirical results for the US Good statistical fit >>0 Houthakker-Magee asymmetry Implication: with constant prices and equal U.S. and foreign income growth, U.S. trade deficit widens ’s and ’s small In part reflecting incomplete pass-through U.S. trade deficit U.S. economy has been outperformed major trading partners 1997-2006 Real dollar appreciated sharply from 1996 to 2001; depreciated since 2002 Gap between imports and exports now so large that a marked acceleration in exports is needed to close trade deficit U.S. trade deficit Partial equilibrium: trade deficit drives financial flows General equilibrium: if ex-ante trade and financial flows differ, then the real exchange rate adjusts to equate the expost flows