Global Current Account Imbalances and Exchange Rate Adjustments

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Global Current Account Imbalances and Exchange Rate Adjustments

Author Info

Maurice Obstfeld (University of California, Berkeley)
Kenneth S. Rogoff (Harvard University)

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Maurice Obstfeld

Abstract

We develop a three-region economic model to assess how a significant reduction in global current account imbalances might impact dollar, euro, and Asian real exchange rates under alternative scenarios. Sizable exchange rate shifts appear to be a necessary corollary of adjustment even under otherwise relatively benign scenarios where appropriate policy actions are taken (for example, to raise U.S. national saving or to make Asian exchange rates more flexible). Our baseline estimate suggests that a halving of the U.S. current account deficit would entail nearly a 20 percent appreciation of Asian real exchange rates versus the dollar and a slightly smaller rise in European currencies. Although an adverse scenario is not the most likely outcome, the risks appear to be significantly higher than they were five years ago.

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Publisher Info
Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 36 (2005)
Issue (Month): 2005-1 ()
Pages: 67-146
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Handle: RePEc:bin:bpeajo:v:36:y:2005:i:2005-1:p:67-146

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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This page was last updated on 2009-11-8.

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