Global rebalancing: the macroeconomic impact on the United Kingdom

Alex Haberis, Bojan Markovic (), Karen Mayhew () and Pawel Zabczyk
Additional contact information
Bojan Markovic: National Bank of Serbia
Karen Mayhew: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 421, Bank of England working papers from Bank of England

Abstract: This paper considers the implications for the United States, the United Kingdom and the rest of the world (ROW) of shocks that may contribute to a further reduction in global current account imbalances using a dynamic stochastic general equilibrium (DSGE) model. We consider a shock that increases domestic demand in the ROW; a shock that reduces domestic demand in the United States; and a supply shock that raises US productivity relative to other countries. The impact on UK output and inflation depends on the nature of the shock that drives global rebalancing. An increase in domestic demand in the ROW would raise UK exports and output, but would also contribute to increased inflationary pressure in the United Kingdom. Further weakness in US domestic demand is likely to weigh on UK output and inflation. Productivity gains in the United States relative to other countries would worsen the United Kingdom’s current account position, pushing down on output, but would lead to reduced inflationary pressure in the United Kingdom.

Keywords: Global imbalances; Current account; DSGE models. (search for similar items in EconPapers)
JEL-codes: D58 F41 F47 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-04-15
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0421

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