Three Current Account Balances: A "Semi-Structuralist" Interpretation
Abstract
Three large current account imbalances the U.S. deficit
and the two surpluses in Japan and in the euro area are
subjected to a minimalist structural interpretation. This simple
interpretation enables us to assess how much of each of the
imbalances require a real exchange rate adjustment. According to
the estimates, a large part of the U.S. current account deficit
(nearly 2 percentage points of the 2004 deficit of 5 percent of
GDP) will undergo an adjustment process that involves real
depreciation in its exchange rate. For Japan, a little more than
1 percentage point of gross domestic product of the current
account surplus is found to require an exchange rate movement
(real appreciation) as the surpluses adjust down. For the euro
area, less than half a percentage point of
its current account surplus is found to require an adjustment
via real appreciation.