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The Current Account and the U.S. Dollar

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Observations that the dollar is over-valued imply that its current level is unsustainable and that its recent path is inconsistent with a growing U.S. current account (trade) deficit. Since mid-1995, the real (inflation adjusted) dollar has appreciated 10%, while the trade deficit has widened by $6 billion. Much of this appreciation reflects dollar movements against the Japanese yen. Unfortunately, the relationship between the dollar and the trade deficit is neither as clear nor as unambiguous as many pundits would have us believe.

Suggested citation: “The Current Account and the U.S. Dollar,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-03, pp. 18-19, 03.01.1997.

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