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Chapter 2: Global Imbalances

Listed author(s):
  • Lars Calmfors
  • Giancarlo Corsetti
  • Seppo Honkapohja
  • John Kay
  • Gilles Saint-Paul
  • Hans-Werner Sinn
  • Jan-Egbert Sturm
  • Xavier Vives

Huge global imbalances have emerged as a result of the massive current account deficits of the US. The US deficit is largely matched by surpluses in Asia, oil-exporting countries and a few European countries. Correction of global imbalances will require substantial depreciation of the US dollar, though the extent of the adjustment cannot be precisely estimated. The correction of global imbalances could lead to a prolonged fall in the external demand for European products as well as to increased competition from US firms. A large enough fall of the dollar could cause substantial negative wealth shocks arising from reductions in the value of Europe’s dollar-denominated assets. The risk of a financial crisis will increase if a large fall in the dollar is accompanied by a drop in US and worldwide output. It would be difficult to deal with such a crisis under the current frameworks for monetary and fiscal policy. The sizeable government budget deficits in some large EU countries imply that fiscal policy may not enjoy the necessary room for manoeuvre in such a situation.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-EEAG_Report/zs-eeag-2006/eeag_report_chap2_2006.pdf
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Article provided by CESifo Group Munich in its journal EEAG Report on the European Economy.

Volume (Year): (2006)
Issue (Month): (03)
Pages: 50-67

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Handle: RePEc:ces:eeagre:v::y:2006:i::p:50-67
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  1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  2. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
  3. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Working Papers 11563, National Bureau of Economic Research, Inc.
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  6. Kraay, Aart & Ventura, Jaume, 2005. "The dot-com bubble, the Bush deficits, and the U.S. current account," Policy Research Working Paper Series 3672, The World Bank.
  7. Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2005. "Expansionary fiscal shocks and the trade deficit," International Finance Discussion Papers 825, Board of Governors of the Federal Reserve System (U.S.).
  8. Michele Cavallo & Cédric Tille, 2006. "Current account adjustment with high financial integration: a scenario analysis," Economic Review, Federal Reserve Bank of San Francisco, pages 31-45.
  9. Giancarlo Corsetti & Gernot J. Müller, 2005. "Twin Deficits: Squaring Theory, Evidence and Common Sense," Economics Working Papers ECO2005/22, European University Institute.
  10. Catherine L. Mann & Katharina Plück, 2005. "The US Trade Deficit: A Disaggregated Perspective," Working Paper Series WP05-11, Peterson Institute for International Economics.
  11. Maurice Obstfeld & Kenneth Rogoff, 2001. "Perspectives on OECD Economic Integration: Implications for US Current Account Adjustment," International Trade 0012004, EconWPA.
  12. Rodrik, Dani, 2006. "The Social Cost of Foreign Exchange Reserves," CEPR Discussion Papers 5483, C.E.P.R. Discussion Papers.
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  14. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb, pages -.
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  17. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Jan).
  18. Hilary Croke & Steven B. Kamin & Sylvain Leduc, 2005. "Financial market developments and economic activity during current account adjustments in industrial economies," International Finance Discussion Papers 827, Board of Governors of the Federal Reserve System (U.S.).
  19. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
  20. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, January.
  21. Muge Adalet & Barry Eichengreen, 2007. "Current Account Reversals: Always a Problem?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 205-246 National Bureau of Economic Research, Inc.
  22. Cuñat, Alejandro & Maffezzoli, Marco, 2002. "Neoclassical Growth and Commodity Trade," CEPR Discussion Papers 3322, C.E.P.R. Discussion Papers.
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  24. Richard H. Clarida & Manuela Goretti & Mark P. Taylor, 2006. "Are There Thresholds of Current Account Adjustment in the G7?," NBER Working Papers 12193, National Bureau of Economic Research, Inc.
  25. Agénor,Pierre-Richard & Miller,Marcus & Vines,David & Weber,Axel (ed.), 1999. "The Asian Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521770804, May.
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  27. Catherine L. Mann, 2002. "Perspectives on the U.S. Current Account Deficit and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 131-152, Summer.
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