2 Economic Perspectives Introduction and summary
International trade the current account and the capital account Federal Reserve Bank of Chicago 3
percent of GDP 16 12 8 4 FIGURE 1 Imports, goods and services Exports, goods and services 0 Trade -4 1960 65 70 75 80 85 90 95 00 4 Economic Perspectives
Savings and investment im FIGURE 2 FIGURE 3 percent of GDP 2.5 0.0 Income account percent of GDP 10 5 Change in U.S. foreign assets Change in U.S. foreign liabilities -2.5 Transfer Trade Current account -5.0 1960 65 70 75 80 85 90 95 00 0 Capital account -5 1960 65 70 75 80 85 90 95 00 Federal Reserve Bank of Chicago 5
Which hypothesis best fits the data? 6 Economic Perspectives
A. Large versus small country FIGURE 4 D. Consumption boom r S D (S D + S F ) Large r S D 1 + SF 0 S D 0 + SF 0 r 1 r = r* (S D + S F ) Small r 0 current account deficit 1 0 B. Safe haven E. Technology shock r S D 0 + SF 0 r S D + S F S D 0 + SF 1 r 0 r 1 r 1 r 0 1 0 0 1 0 1 C. Capital outflow, small country F. Capital outflow, large country r r S D 0 + SF 1 risk premium r 1 r 0 S D 0 + SF 1 S D 0 + SF 0 risk premium r 1 r 0 S D 0 + SF 0 1 0 1 0 Notes: r* = world interest rate; S D = domestic savings; S F = foreign savings; = investment. Federal Reserve Bank of Chicago 7
percent 75 50 25 0 FIGURE 6 Broad consumer goods Capital goods and intermediaries Other 1979 82 85 88 91 94 98 00 Note: Broad consumer goods comprises consumer goods, foods, feeds and beverages, and automotive. percent of GDP 25 20 15 10 5 0 FIGURE 5 Current account Gross national savings Gross domestic investment -5 1960 65 70 75 80 85 90 95 00 percent of GDP 2.0 1.5 1.0 0.5 0.0 FIGURE 7 Airplanes, etc. Other Total capital goods Computers, etc. -0.5 1973 76 79 82 85 88 91 94 97 00 8 Economic Perspectives
percent 85 FIGURE 8 percent 30 percent 10 FIGURE 9 80 Consumption (left axis) 25 8 75 Investment (right axis) 70 15 1960 65 70 75 80 85 90 95 00 20 6 4 1990 92 94 96 98 00 Source: Federal Reserve Board of Governors. What would an adjustment mean? Federal Reserve Bank of Chicago 9
BOX 1 10 Economic Perspectives
percent 100 FIGURE 10 FIGURE 11 Other inflows 75 50 Stocks and bonds Other outstanding bonds 22% Stocks 28% 25 Direct investment 0 1960 65 70 75 80 85 90 95 99 Agency bonds 23% New corporate issues 27% percent of GDP 2.5 0.0-2.5 FIGURE 12 Services Total Goods -5.0 1960 65 70 75 80 85 90 95 00 Federal Reserve Bank of Chicago 11
Conclusion 12 Economic Perspectives
Federal Reserve Bank of Chicago 13