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On International Policy Coordination and the Correction of Global Imbalances

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  • Bruno Albuquerque
  • Cristina Manteu

Abstract

Global current account imbalances are generally seen as a threat to world growth. Given that they are projected to remain high, in an environment of prevailing downside risks, what could be done to reduce these imbalances? Using NiGEM, a large-scale multi-country model, we build up a global rebalancing scenario by assuming policy coordination at world level. This scenario considers that advanced economies adopt more ambitious fiscal consolidation (Layer 1) and structural reforms to boost potential output (Layer 2), whereas large emerging market surplus economies increase exchange rate flexibility and carry out structural reforms aimed at supporting domestic demand (Layer 3). Our main findings are the following. The global rebalancing scenario would reduce global imbalances by one quarter and world GDP would rise in a five-year period, lending support to the view that multilateral coordinated policy action would imply stronger, more sustainable and balanced growth of the world economy. Nevertheless, and contrary to recent analysis by the IMF, this scenario would carry some costs, specifically for some of the major advanced deficit economies which would experience a fall in GDP relative to the baseline.

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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201214.

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Date of creation: 2012
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Handle: RePEc:ptu:wpaper:w201214

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  1. Hansjörg Blöchliger & Dae-Ho Song & Douglas Sutherland, 2012. "Fiscal Consolidation: Part 4. Case Studies of Large Fiscal Consolidation Episodes," OECD Economics Department Working Papers 935, OECD Publishing.
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  3. Barrell, Ray & Becker, Bettina & Byrne, Joseph & Gottschalk, Sylvia & Hurst, Ian & van Welsum, Desiree, 2004. "Macroeconomic policy in Europe: experiments with monetary responses and fiscal impulses," Economic Modelling, Elsevier, vol. 21(5), pages 877-931, September.
  4. Ali Abbas, S.M. & Bouhga-Hagbe, Jacques & Fatás, Antonio & Mauro, Paolo & Velloso, Ricardo C., 2010. "Fiscal Policy and the Current Account," CEPR Discussion Papers 7859, C.E.P.R. Discussion Papers.
  5. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2010. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For Oecd Countries," Working Papers halshs-00504161, HAL.
  6. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68 National Bureau of Economic Research, Inc.
  7. Romain Bouis & Orsetta Causa & Lilas Demmou & Romain Duval & Aleksandra Zdzienicka, 2012. "The Short-Term Effects of Structural Reforms: An Empirical Analysis," OECD Economics Department Working Papers 949, OECD Publishing.
  8. Ray Barrell & Dawn Holland & Ian Hurst, 2012. "Fiscal multipliers and prospects for consolidation," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 71-102.
  9. Anne-Marie Brook & Franck Sédillot & Patrice Ollivaud, 2004. "Channels for Narrowing the US Current Account Deficit and Implications for Other Economies," OECD Economics Department Working Papers 390, OECD Publishing.
  10. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
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