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Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia

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Author Info

  • Damiano Sandri
  • Pau Rabanal
  • Isabelle Méjean

Abstract

A reduction in the U.S. current account deficit vis-Ã -vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three-country open economy model of the U.S., China, and other emerging Asia. We compare scenarios where both Chinese and other emerging Asian export prices change by the same proportion to the case where export prices remain constant in one country and increase in the other. Our results are robust to different assumptions about elasticities of substitution and to introducing a high degree of vertical fragmentation in production in the model.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/46.

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Length: 29
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/46

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Related research

Keywords: Asia; Bilateral trade; Economic models; Emerging markets; Export prices; Price elasticity; Real effective exchange rates; Terms of trade; intermediate inputs; tradable goods; exchange rate; current account deficit; exchange rates; elasticity of substitution; imported inputs; real exchange rates; intermediate goods; nontradable goods; real exchange rate; current accounts; nominal exchange rate; exchange rate adjustment; vertical integration; international trade; vertical specialization; exchange rate fluctuations; trade flows; domestic goods; trading partners; current account surplus; aggregate consumption; exchange rate movements; nominal exchange rates; open economy; imported intermediate; bilateral trade flows; world trade; aggregate exports; global trade analysis; price of imports; foreign trade; domestic market; effective exchange rate; trade data; equilibrium model; bilateral trade data; global trade; world growth; net exports; exporting countries; dynamic gains; trade imbalances; exchange rate adjustments; trade costs; aggregate imports; exchange rate changes; exchange rate shocks; real exchange rate fluctuations; real effective exchange rate; import demand; currency appreciation; exchange rate shock; world output; nominal interest rate; export patterns; real exchange rate depreciation; global scale;

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References

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  1. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
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Cited by:
  1. Turhan, Ibrahim M. & Arslan, Yavuz & Kılınç, Mustafa, 2011. "Global Imbalances, Current Account Rebalancing and Exchange Rate Adjustments," MPRA Paper 36475, University Library of Munich, Germany.
  2. Luis Servén & Ha Nguyen, 2013. "Global Imbalances: Origins and Prospects," World Bank Research Observer, World Bank Group, vol. 28(2), pages 191-219, August.
  3. Blaise Gnimasoun & Valérie Mignon, 2013. "Current-account adjustments and exchange-rate misalignments," EconomiX Working Papers 2013-31, University of Paris West - Nanterre la Défense, EconomiX.
  4. Bornali Bhandari, 2013. "Cross-Price Effects and US Trade Elasticities," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(3), pages 273-313, August.
  5. Bonatti, Luigi & Fracasso, Andrea, 2013. "Regime switches in the Sino-American co-dependency: Growth and structural change in China," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 1-32.

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