The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page U.S. External Adjustment: Progress and Prospects
William L. Helkie and Peter Hooper
1989-345  (March 1989)

Abstract:  This paper presents an empirical analysis of the progress in U.S. external adjustment through 1988 and prospects for continued adjustment over the years ahead. Our analysis, based in part on a partial-equilibrium model of the U.S. current account, suggests that adjustment was slower than "expected" during 1986-87, and faster than expected during the first half of 1988. The model was about "on track" in the second quarter of 1988, but did not anticipate the drop off in the trade balance in the second half of the year. We consider various model extrapolations of the U.S. external balance with exchange rates and income growth rates held unchanged. Our model, as well as those of other researchers, indicate that the U.S. external balance will narrow somewhat further during 1989, but will begin to widen again thereafter. This view may be overly pessimistic, due to some limitations of the models. In order to assess the credibility of these projections, we consider the issue of model uncertainty and construct error bands around the model projections using stochastic simulation techniques.

Full paper(329 KB PDF)

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 1989 IFDPs
Accessibility | Contact Us
Last update: November 10, 2008