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Global Imbalances and Structural Change in the United States

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  • Kim Ruhl

    (New York University Stern School of Busi)

  • Joseph Steinberg

    (Univ of Minnesota)

  • Timothy Kehoe

    (University of Minnesota)

Abstract

The United States has borrowed heavily from the rest of the world since the early 1990s. We build a model where this borrowing is driven by foreign demand for saving – a global savings glut – that matches the dynamics of the U.S. trade balance, real exchange rate, sector-level trade balances, and reallocation of labor across sectors. We use our model to study what will happen when the savings glut ends. The U.S. will run a permanent trade surplus and its real exchange rate will depreciate substantially, but goods sector employment will continue to fall. A sudden stop will cause a sharp trade balance reversal, large real exchange rate depreciation, and painful reallocation across sectors but will have little lasting impact on the U.S. economy’s trajectory.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1089.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1089

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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References

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Cited by:
  1. Barattieri, Alessandro, 2014. "Comparative advantage, service trade, and global imbalances," Journal of International Economics, Elsevier, vol. 92(1), pages 1-13.
  2. Robert Z. Lawrence & Lawrence Edwards, 2013. "US Employment Deindustrialization: Insights from History and the International Experience," Policy Briefs PB13-27, Peterson Institute for International Economics.
  3. Timothy J. Kehoe & Kim J. Ruhl & Joseph B. Steinberg, 2013. "What will happen when foreigners stop lending to the United States?," Economic Policy Paper 13-4, Federal Reserve Bank of Minneapolis.

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