nr 111 - What do current account reversals in OECD countries tell us about the US case?

DNB Working Papers
Date 24 August 2006
This study examines macro-economic developments around reversals in current account deficits in 29 OECD countries over four decades and draws some inferences for the present US deficit. Estimates of a probit model indicate that the deepness of the deficit itself, absence of spare production capacity and a beginning real depreciation are factors that increase the likelihood of a current account reversal in the following year. For the US each of these three indicators of a reversal are now on, making a near reversal probable. Over the past 40 years half of the current account deficit reversals in the OECD area were followed by a recession in the countries concerned. JEL codes: F32, F47 Keywords: Current account adjustment; US; forecasting reversals