IDEAS home Printed from https://ideas.repec.org/a/fip/fedgpr/y2005x10.html
   My bibliography  Save this article

Smooth landing or crash? model based scenarios of global current account rebalancing

Author

Listed:
  • Hamid Faruqee
  • Douglas Laxton
  • Dirk Muir
  • Paolo Pesenti

Abstract

This paper re-examines the implications, risks, and attendant policies surrounding global rebalancing of current accounts through the lens of a dynamic, multi-region model of the global economy. In the baseline scenario, world macroeconomic imbalances of the early 2000s can be attributed to a combination of six related but distinct tendencies: (i)expansionary U.S. fiscal policy, (ii) declining rate of U.S. private savings, (iii) increased foreign demand for U.S. assets, particularly in Asia, (iv) strong productivity growth in emerging Asia, (v) lagging productivity growth in Japan and the euro area, and (vi) gaining export competitiveness in emerging Asia. The baseline projects stabilizing U.S. public and foreign debt (albeit at higher levels) and a gradual depreciation of the dollar, allowing the U.S. external deficit to gradually move to a sustainable level. An alternative scenario, involving a sudden portfolio reshuffling in the rest of the world, would result in higher U.S. real interest rates, a significantly weaker dollar, with harmful effects on U.S. (and possibly global) growth. More flexible exchange rates in emerging Asia can help reduce variability in both regional output and inflation. Other simulations consider the effects of U.S. fiscal adjustment, as well as growth-enhancing structural reforms in Europe and Japan.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2005. "Smooth landing or crash? model based scenarios of global current account rebalancing," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgpr:y:2005:x:10
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/events/conferences/if20051202/program.htm
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    2. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, August.
    3. Blanchard, Olivier & Giavazzi, Francesco & Sá, Filipa, 2005. "The US Current Account and the Dollar," CEPR Discussion Papers 4888, C.E.P.R. Discussion Papers.
    4. 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).
    5. Sébastien Jean & Giuseppe Nicoletti, 2004. "Regulation and Wage Premia," Working Papers 2004-12, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Econometric models ; International trade ; Fiscal policy - United States;

    JEL classification:

    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgpr:y:2005:x:10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.