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The Role of Currency Realignments in Eliminating the US and China Current Account Imbalances

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  • Martin S. Feldstein

Abstract

The high level of current account imbalances continues to be a major focus of international concern. In this paper I suggest why public and private actions in the United States and China are now likely to cause the current account imbalances in those countries to shrink and perhaps even to disappear in the next few years. If that happens, it will eliminate the largest current account imbalances in the global economy. The United States now has a current account deficit of about $500 billion or 3.5 percent of US GDP. China has a current account surplus of about $300 billion or 6 percent of its GDP. Although natural market forces should resolve such imbalances without the need for specific government policies, the government actions in both countries have actually contributed to their persistence and prevented market forces from correcting the problem. That may be about to change.

Suggested Citation

  • Martin S. Feldstein, 2011. "The Role of Currency Realignments in Eliminating the US and China Current Account Imbalances," NBER Working Papers 16674, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16674 Note: IFM
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    Cited by:

    1. Ansgar Belke & Christian Dreger, 2011. "Current Account Imbalances in the Euro Area: Catching up or Competitiveness?," Discussion Papers of DIW Berlin 1106, DIW Berlin, German Institute for Economic Research.
    2. Kym Anderson & Anna Strutt, 2016. "Impacts of Emerging Asia on African and Latin American Trade: Projections to 2030," The World Economy, Wiley Blackwell, vol. 39(2), pages 172-194, February.
    3. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Economics Bulletin, AccessEcon, vol. 31(3), pages 1993-2005.
    4. repec:hal:wpaper:halshs-00829460 is not listed on IDEAS
    5. Kym Anderson & Anna Strutt, 2012. "Agriculture and Food Security in Asia by 2030," Macroeconomics Working Papers 23309, East Asian Bureau of Economic Research.
    6. Benigno, Pierpaolo & Romei, Federica, 2014. "Debt deleveraging and the exchange rate," Journal of International Economics, Elsevier, vol. 93(1), pages 1-16.
    7. Ansgar Belke & Christian Dreger, 2013. "Current Account Imbalances in the Euro Area: Does Catching up Explain the Development?," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 6-17, February.
    8. repec:hal:cepnwp:halshs-00829460 is not listed on IDEAS
    9. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    10. Ansgar Belke & Christian Dreger, 2011. "Current Account Imbalances in the Euro Area: Catching up or Competitiveness?," Ruhr Economic Papers 0241, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. Jamel Saadaoui & Jacques Mazier & Nabil Aflouk, 2013. "On the determinants of exchange rate misalignments," Applied Economics Letters, Taylor & Francis Journals, vol. 20(18), pages 1608-1610, December.
    12. Arslan, Yavuz & Kılınç, Mustafa & Turhan, M. İbrahim, 2015. "Global imbalances, current account rebalancing and exchange rate adjustments," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 324-341.
    13. repec:zbw:rwirep:0241 is not listed on IDEAS
    14. Dreger, Christian & Zhang, Yanqun, 2014. "Does the economic integration of China affect growth and inflation in industrial countries?," Economic Modelling, Elsevier, vol. 38(C), pages 184-189.
    15. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
      [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
      ," MPRA Paper 51332, University Library of Munich, Germany.
    16. Luigi Bonatti & Andrea Fracasso, 2011. "Chinese reserves accumulation and US monetary policy: Will China go on buying US financial assets?," Department of Economics Working Papers 1105, Department of Economics, University of Trento, Italia.
    17. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
    18. Riccardo Fiorentini & Guido Montani, 2012. "The New Global Political Economy," Books, Edward Elgar Publishing, number 14443, April.
    19. Anderson, Kym & Strutt, Anna, 2012. "The changing geography of world trade: Projections to 2030," Journal of Asian Economics, Elsevier, vol. 23(4), pages 303-323.
    20. Christian Dreger & Yanqun Zhang, 2011. "The Chinese Impact on GDP Growth and Inflation in the Industrial Countries," Discussion Papers of DIW Berlin 1151, DIW Berlin, German Institute for Economic Research.
    21. Anderson, Kym & Strutt, Anna, 2012. "Asia’s Growth, the Changing Geography of World Trade, and Food Security: Projections to 2030," CEPR Discussion Papers 8950, C.E.P.R. Discussion Papers.
    22. Miller Marcus & Santos Monteiro Paulo & Zhang Lei, 2011. "Eastern Caution, Western Exuberance and Global Imbalances," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-42, August.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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