Abstract

The purpose of this study is to determine the effects of the major macroeconomic indicators on U.S. current account deficit. Using the quarterly data from January 1973 to April 2013, this study attempts to examine whether those factors are truly the cause of massive current account deficit in the United States. We have considered a range of variables such as inflation rate, interest rate, exchange rate, and the gross domestic product (GDP) growth rate. We find in the presence of autocorrelation, the ordinary least square (OLS) coefficients having the right signs, and are statistically significant. However, we conducted the ARMA model to remedy the problem associated with ordinary least square and performed the CUSUM test, QLR test, and the test for serial correlation. The study estimation results suggest that an increase in GDP growth rate, inflation rate, and a decrease in the interest rate causes the country's imports to exceed exports. The trade-weighted U.S. dollar index as a measure of exchange rate did not generate any significant impact on the current account deficit in the study estimation results.

Key words: Current account deficit, inflation rate, GDP growth rate, interest rate.