Prospects for Global Current Account Rebalancing

Kimberly Beaton, Carlos de Resende, René Lalonde and Stephen Snudden

Discussion Papers from Bank of Canada

Abstract: The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered.

Keywords: Balance of payments and components; Business fluctuations and cycles; International topics; Recent economic and financial developments (search for similar items in EconPapers)
JEL-codes: E21 F01 F32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-cba, nep-mac, nep-opm and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/05/dp10-4.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:10-4

Access Statistics for this paper

More papers in Discussion Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().