The Impact of Cyclical Factorson the U.S. Balance of Payments

Abstract

Real GDP growth and real effective exchange rate (REER) appreciation appear co-integrated with the current and financial accounts of the U.S. balance of payments. On this basis, we estimate reduced form equations showing that expected changes and shocks to real GDP, the REER, energy prices, and growth in emerging market economies and other industrial countries explain much of the short-term variation in the U.S. current account balance, with the balance worsening as real GDP, the REER, and to a lesser extent, energy prices increase. In addition, the financial balance improves with real growth and an increase in the oil price, while stock market prices affect the composition of capital inflows. JEL Classification Numbers: F3; F4