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• Case | HBS Case Collection | July 2005 (Revised September 2020)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson and Jonathan Schlefer

  Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

  Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

  Citation:

  Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised September 2020.)  View Details

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• Case | HBS Case Collection | July 2005 (Revised September 2020)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson and Jonathan Schlefer

  Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

  Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

  Citation:

  Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised September 2020.)  View Details

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• Working Paper | HBS Working Paper Series | 2020

  (When) Does Appearance Matter? Evidence from a Randomized Controlled Trial

  Prithwiraj Choudhury, Tarun Khanna, Christos A. Makridis and Subhradip Sarker

  While there is evidence about labor market discrimination based on race, religion, and gender, we know little about whether physical appearance leads to discrimination in labor market outcomes. We deploy a randomized experiment on 1,000 respondents in India between April and May 2020 to investigate how “looks” affect labor market outcomes. Using machine learning and computer face rendering techniques, we simulate North, South, and Northeastern Indian faces and randomize two waves of treatments where we attach faces with otherwise identical CVs. However, the second wave also contains a vignette where we provide respondents with information about the incidence of discrimination. We focus on Northeastern Indian faces that resemble those in China to focus on the potential for discrimination that has historically been present in anecdotal accounts. While we do not find evidence of discrimination against Northeastern faces in the first wave, we do so in the second among those who do not see the vignette. We provide suggestive evidence that these results are consistent with the presence of homophily under limited attention.

  Citation:

  Choudhury, Prithwiraj, Tarun Khanna, Christos A. Makridis, and Subhradip Sarker. "(When) Does Appearance Matter? Evidence from a Randomized Controlled Trial." Harvard Business School Working Paper, No. 21-038, September 2020.  View Details

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