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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13846.
Length: Date of creation: Mar 2008 Date of revision: Handle: RePEc:nbr:nberwo:13846
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Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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Robert Dekle & Jonathan Eaton & Samuel Kortum, 2007.
"Unbalanced Trade,"
American Economic Review,
American Economic Association, vol. 97(2), pages 351-355, May.
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Robert Dekle & Jonathan Eaton & Samuel Kortum, 2007.
"Unbalanced Trade,"
NBER Working Papers
13035, National Bureau of Economic Research, Inc.
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