RDP 2005-09: The US Current Account Deficit: A Re-Examination of the Role of Private Saving 5. Conclusions

At this stage, our results are very preliminary. We have presented a model and provided rough calibrations that suggest that there may be some role for an expected rise in the US share of world GDP in explaining the high US current account deficit of recent years. We present plausible scenarios in which modest continued growth in the US share of world growth could justify high US external borrowing today. We acknowledge, however, that there is a great deal of uncertainty about the future path of the US share of world output.

Our forthcoming Carnegie-Rochester study will examine this model more carefully. It will also estimate a stochastic process for the US share of net GDP, and ask whether the US current account can be seen as being derived from this optimising model. We will also take a much longer horizon on the US current account deficit and implement tests much like those that Bohn (2004) uses to examine the sustainability of the US government budget deficits.