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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (24717)	3/2/2005 7:57:36 PM
From: CalculatedRisk	Read Replies (1) of 116555

Another FED paper on the Current Account Deficit ... Will an Adjustment in the Current Account Deficit Lead to a Recession? calculatedrisk.blogspot.com The paper I reference reviews historical periods of CAD adjustment. The authors conclude: "a significant subset of the adjustment episodes we studied were associated with substantial declines in GDP growth ... Thus, the fear that current account adjustment might be associated with recession is not entirely without basis." BUT ... "[O]ur second main finding is that the shortfall in growth experienced in the contraction episodes appears to reflect the playing out of standard cyclical developments rather than a response to current account adjustment." MY COMMENT: My interpretation of their conclusion is that a CAD adjustment doesn't necessarily cause a recession, but a recession cures a CAD problem. Is that good news or bad?

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