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Global Rebalancing with Gravity: Measuring the Burden of Adjustment

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  • Robert Dekle
  • Jonathan Eaton
  • Samuel Kortum

Abstract

We use a forty-two country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDP's, real wages, and real absorption. How much relative GDP's need to change depends on flexibility of two forms: factor mobility and the adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, US GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13846.

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Date of creation: Mar 2008
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Publication status: published as Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan Journals, vol. 55(3), pages 511-540, July.
Handle: RePEc:nbr:nberwo:13846

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  1. Jonathan Eaton & Samuel Kortum, 2004. "An Anatomy of International Trade: Evidence from French Firms," 2004 Meeting Papers 802, Society for Economic Dynamics.
  2. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  4. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
  5. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  6. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
  7. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2008. "Varieties and the Transfer Problem: the Extensive Margin of Current Account Adjustment," CEPR Discussion Papers 6660, C.E.P.R. Discussion Papers.
  8. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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