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Consequences of global imbalance corrections for Hungary

  • Zoltán M. Jakab

    ()

    (Magyar Nemzeti Bank (central bank of Hungary))

There are numerous signs of the emergence of global imbalances in world economy. This is reflected by the fact that of the developed countries the USA is producing a substantial, historically unprecedented magnitude of current account deficit vis-a-vis the current account surplus of a well-defined group of mainly emerging countries and of some developed countries. This is probably not an optimal situation, and in the course of solving this problem there is the question of what impacts the Hungarian economy may be exposed to and what steps Hungarian monetary policy can take. In examining the various scenarios of global adjustment, it is important to distinguish between an adjustment originating in Asia or in the USA. The former stimulates the Hungarian economy, while the latter temporarily hinders the Hungarian economy. A correction triggered by the markets has stronger output consequences for the Hungarian economy, than that of a restrictive fiscal policy in the USA. Hungarian monetary policy has an effect on whether output or inflation will become more volatile. Hungarian monetary policy tracking the ECB involves higher fluctuations in inflation and lower changes in GDP, whereas the situation is just the opposite in case of independent policies. If the exchange rate of the forint weakens due to a decline in global risk appetite, this would initially result in growing inflation, although over the longer term even lower GDP and inflation cannot be ruled out either.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbszemle/mnben_MNB_Bulletin_December_2006/mnbsz_200612_jakab_en.pdf
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Article provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.

Volume (Year): 1 (2006)
Issue (Month): 2 (December)
Pages: 27-34

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Handle: RePEc:mnb:bullet:v:1:y:2006:i:2:p:27-34
Contact details of provider: Web page: http://www.mnb.hu/

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  1. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  2. Philip R. Lane & G Milesi-Feretti, 2004. "Financial Globalization and Exchange Rates," CEP Discussion Papers dp0662, Centre for Economic Performance, LSE.
  3. 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.).
  4. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, 08.
  5. Eichengreen, Barry, 2006. "Global imbalances: The new economy, the dark matter, the savvy investor, and the standard analysis," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 645-652, September.
  6. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc.
  7. Caroline L. Freund, 2000. "Current account adjustment in industrialized countries," International Finance Discussion Papers 692, Board of Governors of the Federal Reserve System (U.S.).
  8. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "Financial globalization and exchange rates," LSE Research Online Documents on Economics 19926, London School of Economics and Political Science, LSE Library.
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