Global rebalancing: the macroeconomic impact on the United Kingdom
AbstractThis paper considers the implications for the United States, the United Kingdom and the rest of the world (ROW) of shocks that may contribute to a further reduction in global current account imbalances using a dynamic stochastic general equilibrium (DSGE) model. We consider a shock that increases domestic demand in the ROW; a shock that reduces domestic demand in the United States; and a supply shock that raises US productivity relative to other countries. The impact on UK output and inflation depends on the nature of the shock that drives global rebalancing. An increase in domestic demand in the ROW would raise UK exports and output, but would also contribute to increased inflationary pressure in the United Kingdom. Further weakness in US domestic demand is likely to weigh on UK output and inflation. Productivity gains in the United States relative to other countries would worsen the United Kingdom’s current account position, pushing down on output, but would lead to reduced inflationary pressure in the United Kingdom.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 421.
Length: 26 pages
Date of creation: 15 Apr 2011
Date of revision:
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More information through EDIRC
Global imbalances; Current account; DSGE models.;
Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-30 (All new papers)
- NEP-CBA-2011-04-30 (Central Banking)
- NEP-DGE-2011-04-30 (Dynamic General Equilibrium)
- NEP-EEC-2011-04-30 (European Economics)
- NEP-OPM-2011-04-30 (Open Economy Macroeconomics)
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