The Do-Com Bubble

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This PDF is a selection from a published volume from the National Bureau of Economic Research

Volume Title: G7 Current Account Imbalances: Sustainability and Adjustment Volume Author/Editor: Richard H. Clarida, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-10726-4 Volume URL: http://www.nber.org/books/clar06-2 Conference Date: June 1-2, 2005 Publication Date: May 2007

Title: The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account Author: Aart Kraay, Jaume Ventura URL: http://www.nber.org/chapters/c0124

11 The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account
Aart Kraay and Jaume Ventura

11.1 Introduction Since the early 1990s, the United States has experienced steadily widening current account deficits, reaching 5.7 percent of gross national product (GNP) in 2004 (see top panel of figure 11.1). These deficits are large relative to the postwar U.S. historical experience. With the exception of a brief period in the mid-1980s where current account deficits reached 3.3 percent of GNP, the U.S. current account has typically registered small surpluses or deficits averaging around 1 percent of GNP. As a consequence of the recent deficits, the U.S. net foreign asset position has declined sharply from –5 percent of GNP in 1995 to about –26 percent by the end of 2004 (see bottom panel of figure 11.5). The goal of this paper is to provide an account of this decline that relates it to other major macroeconomic events and helps us to grasp its implications for welfare and policy. Any attempt to do this must take into consideration a major change in the pattern of asset trade between the United States and the rest of the world (see figure 11.2). During the second half of the 1990s, the United States accumulated foreign assets and liabilities at the rate of $765 billion and $965 billion per year. About two-thirds of this…...

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