Trade-imbalances networks and exchange rate adjustments: The paradox of a new Plaza
Andrea Fracasso and
Stefano Schiavo
No 824, Department of Economics Working Papers from Department of Economics, University of Trento, Italia
Abstract:
Global imbalances are not new as much as the effort to address them. In the mid 1980s the phenomenon led the most industrialised countries to orchestrate a devaluation of the US dollar so as to reduce the US trade deficit. Some economists have called for a similar "New Plaza" agreement to tackle the present situation. The feasibility of such a plan has not been thoroughly assessed so far. In this paper we apply complex network analysis to characterise the properties of the web of international bilateral trade imbalances. We study its evolution over time and the position of key players within it. We find that the complexity of the network has increased in several dimensions, and this casts doubts on the usefulness of a coordinated solution among industrialised countries only. In addition, we propose new effective exchange rate measures based on bilateral trade imbalances, and study their dynamics in the 1980s and in the 2000s. By distinguishing exchange rate movements against debtor and creditor countries we show that, so far, they have not been consistent with the simultaneous reduction in all trade bilateral imbalances. A paradox therefore emerges: the growing difficulty to orchestrate a plan involving a large number of partners is matched by the inability of so far uncoordinated exchange rate adjustments to close global imbalances.
Keywords: Plaza agreement; exchange rates; global imbalances; network analysis (search for similar items in EconPapers)
JEL-codes: F31 F33 F42 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-net
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Related works:
Working Paper: Trade-imbalances networks and exchange rate adjustments: The paradox of a new Plaza (2008)
Working Paper: Trade-imbalances networks and exchange rate adjustments: The paradox of a new Plaza (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpde:0824
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