Editors' Summary‪.‬

THE BROOKINGS PANEL ON Economic Activity held its seventy-ninth conference in Washington, D.C., on March 31 and April 1, 2005. This issue of Brookings Papers on Economic Activity includes the papers and discussions presented at the conference. The first four articles address the position of the United States in the global economy, an increasingly controversial subject in the research, financial, and policy communities. Since the early 1990s, U.S. current account deficits have grown almost without interruption, reaching $666 billion, or about 6 percent of GDP, in 2004. The U.S. international investment position is now one of net indebtedness approaching 30 percent of GDP, and in recent years a substantial portion of the buildup in net debt has come in the form of additions to dollar reserves by foreign central banks. Some observers see the present situation as unsustainable and warn of an abrupt depreciation of the dollar, which could destabilize financial markets and disrupt the global economy. Others are more sanguine, arguing that the present situation reflects the relative strength of the U.S. economy, consumer and business preferences, and rational financial decisions, all of which could evolve so as to make any needed adjustments gradual. Each of the four articles takes a different approach to analyzing the situation, focusing on issues that the authors see as key. The first article models portfolio choices and how they moderate the pace of adjustment in exchange rates and current accounts. The second stresses the relative price changes that will be needed, both in the United States and abroad, to move the U.S. current account toward balance. The third considers the motivations of policymakers in China and elsewhere for accumulating dollar reserves. The fourth assesses the likelihood of an abrupt depreciation of the dollar and the economic instability that might result in the United States and abroad. The volume concludes with an article on the possible impact of slowing labor force growth on stock market returns.