What must eventually fully rebalance the united states current account?
What would a complete "correction" of current account imbalances mean for the worthiness of the dollar, the relative size of the united states economy, and US living standards? What type of adjustments in the US economy will be needed? Exactly what will eventually the major surplus countries aswell concerning smaller players whose economies are tightly from the US, such as for example Canada and Mexico? To answer this question, we should have a means of linking trade flows – specifically US exports and imports – to economic factors including the real exchange rate, US GDP, etc. Here the gravity model will come in.