Is the USA's Current Account Sustainable?


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BUBLA, Florian, 2003. Is the USA's Current Account Sustainable? [Master thesis]

@mastersthesis{Bubla2003Curre-12064, title={Is the USA's Current Account Sustainable?}, year={2003}, author={Bubla, Florian} }

2011-03-25T09:42:26Z application/pdf 2003 Is the USA's Current Account Sustainable? eng terms-of-use The extraordinary height of the U.S. current account deficits in the 90s<br />gave rise to concern, a variety of papers and political recommendations<br />revealing the very contrary opinions of economists on the subject.<br />From this alarming evolution, the question of sustainability of such a large<br />indebtedness arises.<br />Are the U.S. already bankrupt?<br />If not, what is the ultimate level of its foreign debt?<br />As a starting point, the variety of meanings of the term `sustainability'<br />are consolidated to a consistent definition.<br />Introducing terminology and reviewing the basic principles of balance<br />of payments accounting, the evolution of the U.S. balance of payments<br />and international debt is presented in numbers. The models of the central parts of the text<br />emphasise the importance of understanding the current account as an<br />intertemporal phenomenon.<br />The `real' perspective is presented in the baseline representative agent<br />and overlapping generations macro-models whereas the monetary perspective<br />is exposed in a portfolio balance approach.<br />These models are confronted with IMF statistics and checked for<br />plausibility of their implications.<br />As the very crucial point for the U.S. case, the<br />significance of the dollar standard of international financial markets<br />is discussed<br />thereafter.<br />Finally, a detailed breakdown of the income account reveals surprising<br />insights on the quality of U.S. agents' investment decisions.<br /><br />The overall result is striking: Although the debt-to-GDP ratio is<br />approaching its 5 per cent red-mark, there are no effects observable<br />in fundamental variables indicating bankruptcy or un-sustainability of<br />the U.S. international debt.<br />On the contrary - for monetary reasons, the U.S. will be able to run<br />a significant higher level of external debt and models in conjunction<br />with data suggest that the U.S. is approaching a long-run<br />debt-to-GDP steady state. In these results, the author acknowledges the<br />outsider position of economists. Bubla, Florian Bubla, Florian 2011-03-25T09:42:26Z

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