U.S. external imbalances: an empirical approach

Abstract

This paper analyzes the behaviour of the U.S. net external position since the end of the Bretton Woods system and examines alternative paths for future adjustment. We estimate a present value expression that relates the current external imbalance with future expected portfolio return differentials and net exports growth. We find that the return differentials will be the main channel of external adjustment. Half-lives for future adjustments paths towards a balanced position are around 10 years, with these paths having been delayed due to the COVID-19 crisis. The U.S.external adjustment would also involve a significant depreciation of the dollar.