Note: To answer the following questions, you may find that it would be helpful (although it’s not required) to read articles provided in the reading list, such as Bernanke (2005), Yang (2012), Roubini and Setser (2004), and Mann (2002).
(a). Make a chart of the U.S. current account deficit, both in absolute $ value and as a share of GDP from 1990 to present. Find the most recent estimate of the U.S. current account deficit for the next two quarters (Note: depending on the availability of actual data. If actual data is available up to the third quarter of 2019, you should look for the estimate for 2019Q4 and 2020Q1). A
(b). For the same sample period (1990-present), chart the evolution of the net foreign assets of the U.S. (NIIP) and decompose the total NIIP in the part that is the net stock of foreign direct investment from the part that is the rest (portfolio, banks, other forms of debt).
(c). Discuss the evolution of the U.S current account deficit and net foreign assets: how much of the evolution of the deficit (as a share of GDP) is due to changes in private savings, public savings (fiscal deficits) and investment rate (all as a share of GDP) and how much has the role of different factors changed over time?
(d). Based on this analysis, are the U.S. current account and external debt sustainable? Does the U.S. differ or not from emerging markets or not and why?
(e). How likely are the risks of a crash of the U.S. dollar triggered by foreign investors reduced willingness to lend to the U.S. and accumulate U.S. assets?
(f). Will the U.S. dollar strengthen or weaken in the next 2 years and relative to which currencies and why?
Data are available from the Bureau of Economic Analysis: https://apps.bea.gov/iTable/index_nipa.cfm Click “Beginning using the data”, you can find
Section 1: Table 1.1.5 Nominal GDP. Make sure you modify the time span to set the starting year is 1990, similar for downloading other tables. To do that, when you are on the table page, click “Modify”, then select the years desired.
Section 4: Table 4.1. You can find current account balance at Row 35.
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