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On the Adjustment of the Global Economy

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  • Carlos De Resende
  • Claudia Godbout
  • René Lalonde
  • Eric Morin
  • Nikita Perevalov

    (Bank of Canada)

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    Abstract

    This article discusses three scenarios for the adjustment of the global economy. In a “baseline” scenario—which encompasses fiscal consolidation in major advanced economies, growth-friendly structural reforms in Europe and Japan, and greater exchange rate flexibility and reforms in the emerging-market economies of Asia to induce rotation of demand away from net exports—global current account imbalances are resolved over the medium term and strong global economic growth resumes. In one alternative scenario, in which these conditions are delayed, global imbalances persist and growth is substantially reduced. In the second alternative scenario, in which advanced economies front-load fiscal consolidation, but no rotation of demand takes place in the emerging-market economies of Asia and no structural reforms are implemented in Europe and Japan, even weaker global economic growth occurs in the near term.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2012/05/boc-review-spring12-deresende.pdf
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    Bibliographic Info

    Article provided by Bank of Canada in its journal Bank of Canada Review.

    Volume (Year): 2012 (2012)
    Issue (Month): Spring ()
    Pages: 1-15

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    Handle: RePEc:bca:bcarev:v:2012:y:2012:i:spring12:p:1-15

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
    2. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel, 2009. "Wealth effects in emerging market economies," Working Paper Series 1000, European Central Bank.
    3. Ciarlone, Alessio, 2011. "Housing wealth effect in emerging economies," Emerging Markets Review, Elsevier, vol. 12(4), pages 399-417.
    4. Romain Bouis & Romain Duval, 2011. "Raising Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond," OECD Economics Department Working Papers 835, OECD Publishing.
    5. Kimberly Beaton & Carlos de Resende & René Lalonde & Stephen Snudden, 2010. "Prospects for Global Current Account Rebalancing," Discussion Papers 10-4, Bank of Canada.
    6. Carlos De Resende & René Lalonde, 2011. "The BoC-GEM-Fin: Banking in the Global Economy," Bank of Canada Review, Bank of Canada, vol. 2011(Summer), pages 11-21.
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