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Transpacific Imbalances and Macroeconomic Codependency

Willem Thorbecke

No 299, ADBI Working Papers from Asian Development Bank Institute

Abstract: Current account deficits in the United States (US) and current account surpluses in East Asia are an enduring part of the global economic landscape. They are supported by low saving in the US and by reserve accumulation in Asia. This paper argues that this strategy is causing macroeconomic problems for the People’s Republic of China (PRC). Inflation is rising, and interest rates are set too low because the yuan is closely linked to the US dollar. Low interest rates have fueled overinvestment in physical capital and rising real estate prices. They also cause savers to earn negative returns on their bank deposits.

Keywords: reserve accumulation; sterilization policy; transpacific imbalances; macroeconomic codependency (search for similar items in EconPapers)
JEL-codes: F30 F32 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-07-28
New Economics Papers: this item is included in nep-cba and nep-sea
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Working Paper: Transpacific Imbalances and Macroeconomic Codependency (2011) Downloads
Working Paper: Transpacific Imbalances and Macroeconomic Codependency (2011) Downloads
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