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Structural and Cyclical Movements of the Current Account in the U.S. 1976-2007

By Yoichi Matsubayashi


The purpose of this study is to analyze fluctuations in the current account of the U.S. by deconstructing structural and non-structural components with a new method. At the beginning of the 1980s, most components of the U.S. current account were structural. After the Plaza agreement in 1985, the U.S structural current account gradually improved. Since the end of the 1990s, the structural current account deficit increased to nearly 3% of GDP. These movements are generally associated with the structural components of private savings and residential investments. The upheaval in the US sub-prime home-loan market since 2007 sharply contracted housing investment and weakened consumption. Some simulations explored herein suggest a high possibility that these dynamics in domestic demand may considerably ameliorate the external imbalances of the U.S. and deteriorate of the dollar.Structural current account, Intertemporal optimization, Permanent income, Housing Investment, Equilibrium exchange rate

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