The U.S. Current Account: A Long and Short Run Empirical Perspective.

The purpose of this study was to provide an empirical overview of the current account and related data. The study addressed the unit root and cointegrating properties of the current account and other variables to which it is believed to be fundamentally related for the period 1974:Q1-1988:Q2. The tests revealed that the current account, net national saving, net private saving, the budget deficit, nominal and real exchange rates, a measure of U.S. competitiveness, and a measure of relative demand pressure are unit root series. These conclusions were supported by results from a variety of different methodological approaches to testing for a unit root. In this paper, the more recent work on cointegration was also applied to investigate whether the current account shares a common trend with other economic variables to which it is believed to be related. It would be expected that the current account and net national saving would be co-integrated given the national income accounting identity. However, mixed results about a common long run trend between these two variables were found. Cointegration in a bivariate setting did not obtain with the other variables. Each of these findings is of particular interest since the budget deficit and the exchange rate are usually cited as explanations for the current account deficit. [ABSTRACT FROM AUTHOR]