On International Policy Coordination and the Correction of Global Imbalances

Cristina Manteu
Authors registered in the RePEc Author Service: Bruno Albuquerque

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Global current account imbalances are generally seen as a threat to world growth. Given that they are projected to remain high, in an environment of prevailing downside risks, what could be done to reduce these imbalances? Using NiGEM, a large-scale multi-country model, we build up a global rebalancing scenario by assuming policy coordination at world level. This scenario considers that advanced economies adopt more ambitious fiscal consolidation (Layer 1) and structural reforms to boost potential output (Layer 2), whereas large emerging market surplus economies increase exchange rate flexibility and carry out structural reforms aimed at supporting domestic demand (Layer 3). Our main findings are the following. The global rebalancing scenario would reduce global imbalances by one quarter and world GDP would rise in a five-year period, lending support to the view that multilateral coordinated policy action would imply stronger, more sustainable and balanced growth of the world economy. Nevertheless, and contrary to recent analysis by the IMF, this scenario would carry some costs, specifically for some of the major advanced deficit economies which would experience a fall in GDP relative to the baseline.

JEL-codes: E17 F32 F42 F47 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac and nep-opm
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