Make a chart of the U.S. current account deficit, both in absolute $ value and a

Question

Make a chart of the U.S. current account deficit, both in absolute $ value and as a share of GDP from 1990 to present. Find the most recent estimate of the U.S. current account deficit for the next two quarters (Note: depending on the availability of actual data. If actual data is available up to the third quarter of 2016, you should look for the estimate for 2016Q4 and 2017Q1).

For the same sample period (1990-present), chart the evolution of the net foreign assets of the U.S. (NIIP) and decompose the total NIPP in the part that is the net stock of foreign direct investment from the part that is the rest (portfolio, banks, other forms of debt).

Explanation / Answer

This is a forecasting question and can be solved using deterministic methods. Looking up on the US Bureau of Economics website you can gather charts on current account from 1990 to present.

The next step is to estimate a trend on the existing data. Based on the chart, one can see that the data follows a somewhat linear trend with a negative slope. Since our data has a linear fit, we will be using a forecasting formula that best follows this fit.

Linear trend is of the form y= a+bt; where a is the intercept and b is the slope of the line. We would use an OLS estimation method to estimate the population parameters a and b and obtain fitted values: Y= .

The formula for the ex-ante forecast would be Y=0+1(n+h) where n= number of periods till now and h= number of period(s) you want to forecast in to. For example, if the intercept value 0= -40 (in billion $) and slope 1= -5.

we have data up till the last quarter of 2016 (n= 104 quarters) and we are interested to forecast data for 2017 quarter one and 2017 quarter two i.e. for periods 105 and 106.

We would use the above formula as follows:

Y105= -40 - 5(104+1) = -40 -5(105) = -40 - 525 = -565 (in billion $)

Y106= -40 - 5(104+2) = -40 - 5(106) = -40 - 530 = -570 (in billion $)

Depending on the data you collect and the exact numerical values you obtain, you should be using the above formula and example to obtain the exact estimates for your case.

NOTE- to be very precise, you can use the STATA software, if you have one, to get precise values for the parameters of the trend line and then either manually obtain the forecast estimates or use the forecasting command on STATA to obtain the estimates.

As per chegg guidelines, first question answered.

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