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Global Rebalancing with Gravity: Measuring the Burden of Adjustment

  • Robert Dekle
  • Jonathan Eaton
  • Samuel Kortum

This paper uses a 42-country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDPs, real wages, and real absorption. How much relative GDPs need to change depends on flexibility of two forms: factor mobility and adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, U.S. GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small. IMF Staff Papers (2008) 55, 511–540. doi:10.1057/imfsp.2008.17; published online 24 June 2008

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Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 55 (2008)
Issue (Month): 3 (July)
Pages: 511-540

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Handle: RePEc:pal:imfstp:v:55:y:2008:i:3:p:511-540
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  1. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2007. "Unbalanced Trade," NBER Working Papers 13035, National Bureau of Economic Research, Inc.
  2. Eaton, Jonathan & Kortum, Samuel S & Kramarz, Francis, 2009. "An Anatomy of International Trade: Evidence from French Firms," CEPR Discussion Papers 7111, C.E.P.R. Discussion Papers.
  3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  4. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  5. University of Iowa & Michael E. Waugh, 2007. "International Trade and Income Differences," 2007 Meeting Papers 492, Society for Economic Dynamics.
  6. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  7. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2008. "Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment," NBER Working Papers 13795, National Bureau of Economic Research, Inc.
  8. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
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