Dollar Depreciation Smooths Current Account Rebalancing, Boosting U.S. Finances
The article explores how a decrease in the U.S. current account deficit can be achieved through exchange rate changes. It considers the impact of global financial connections on this adjustment process. The research shows that a depreciation of the dollar can help balance the current account by increasing the value of U.S. assets denominated in foreign currencies. This allows the U.S. to continue funding smaller deficits smoothly. The study finds that this adjustment pattern remains consistent even under different scenarios, although exchange rate movements may vary.