Abstract
During the 1990s and 2000s, survey expectations of long-run output growth for the U.S. relative to the rest of the world were highly correlated with the U.S. current account, and thus, with global imbalances. We show that this finding is, to a large extent, predicted by a two-region stochastic growth model simulated using expected trend growth based on surveys. In line with the intertemporal approach to the current account, a major part of the buildup and subsequent reversal of the U.S. current account de.cit appears to be consistent with an optimal response of households and firms to changing growth prospects. This article is protected by copyright. All rights reserved.
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