Sustainable Adjustment of Global Imbalances

Ray Barrell, Dawn Holland and Ian Hurst

No 343, CASE Network Studies and Analyses from CASE-Center for Social and Economic Research

Abstract: This paper uses NIESR’s global econometric model, NiGEM, to analyse possible adjustment paths for the US current account, if its current level of 6 per cent of GDP proves unsustainable. Nominal exchange rate shifts have only a transitory impact on current account balances, so any long-term improvement of the US current account balance would require a real and sustained reduction in domestic absorption, or a rise in foreign absorption. This could be effected through a sequence of exchange rate movements driven by a gradual rise in the risk premium on US assets. This would induce a permanent change in the real exchange rate, and would also reduce domestic absorption in the US due to a rise in real interest rates. Global policy coordination, which involved raising domestic demand in countries such as China and Japan, could speed the process of adjustment and ease the negative impact on the US economy.

Keywords: global imbalances; real exchange rate realignment; risk premia; US current account (search for similar items in EconPapers)
Pages: 26 Pages
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://case-research.eu/upload/publikacja_plik/14978708_sa343.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

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:sec:cnstan:0343

Access Statistics for this paper

More papers in CASE Network Studies and Analyses from CASE-Center for Social and Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Marta Kowerko (marta.kowerko@case-research.eu).