IDEAS home Printed from https://ideas.repec.org/p/red/sed013/1089.html
   My bibliography  Save this paper

Global Imbalances and Structural Change in the United States

Author

Listed:
  • Kim Ruhl

    (New York University Stern School of Busi)

  • Joseph Steinberg

    (Univ of Minnesota)

  • Timothy Kehoe

    (University of Minnesota)

Abstract

The United States has borrowed heavily from the rest of the world since the early 1990s. We build a model where this borrowing is driven by foreign demand for saving – a global savings glut – that matches the dynamics of the U.S. trade balance, real exchange rate, sector-level trade balances, and reallocation of labor across sectors. We use our model to study what will happen when the savings glut ends. The U.S. will run a permanent trade surplus and its real exchange rate will depreciate substantially, but goods sector employment will continue to fall. A sudden stop will cause a sharp trade balance reversal, large real exchange rate depreciation, and painful reallocation across sectors but will have little lasting impact on the U.S. economy’s trajectory.

Suggested Citation

  • Kim Ruhl & Joseph Steinberg & Timothy Kehoe, 2013. "Global Imbalances and Structural Change in the United States," 2013 Meeting Papers 1089, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:1089
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2013/paper_1089.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Backus & Espen Henriksen & Frederic Lambert & Chris Telmer, 2005. "Current Account Fact and Fiction," 2005 Meeting Papers 115, Society for Economic Dynamics.
    2. Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable US Current Account Position Revisited," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376, National Bureau of Economic Research, Inc.
    3. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "Large Devaluations and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 742-784, August.
    4. Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2.
    5. Du, Qingyuan & Wei, Shang-Jin, 2013. "A theory of the competitive saving motive," Journal of International Economics, Elsevier, vol. 91(2), pages 275-289.
    6. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-185, March.
    7. 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.
    8. Bernanke, B.S., 2011. "International capital flows and the returns to safe assets in the United States 2003-2007," Financial Stability Review, Banque de France, issue 15, pages 13-26, February.
    9. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
    10. Francisco J. Buera & Joseph P. Kaboski, 2009. "Can Traditional Theories of Structural Change Fit The Data?," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 469-477, 04-05.
    11. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    12. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
    13. Keyu Jin, 2012. "Industrial Structure and Capital Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2111-2146, August.
    14. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
    15. Juan Carlos Conesa & Timothy J. Kehoe, 2017. "Gambling for redemption and self-fulfilling debt crises," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(4), pages 707-740, December.
    16. Philip R. Lane & Gian Maria Milesi-Ferretti, 2009. "Where Did All the Borrowing Go? A Forensic Analysis of the U.S. External Position," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR, National Bureau of Economic Research, Inc.
    17. Francis E. Warnock & Veronica C. Warnock, 2005. "International Capital Flows and U.S. Interest Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp103, IIIS.
    18. Cook, David & Devereux, Michael B., 2006. "External currency pricing and the East Asian crisis," Journal of International Economics, Elsevier, vol. 69(1), pages 37-63, June.
    19. Harold L. Cole & Timothy J. Kehoe, 2000. "Self-Fulfilling Debt Crises," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(1), pages 91-116.
    20. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    21. Miller,Ronald E. & Blair,Peter D., 2009. "Input-Output Analysis," Cambridge Books, Cambridge University Press, number 9780521517133.
    22. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," American Economic Review, American Economic Association, vol. 99(2), pages 584-588, May.
    23. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    24. Miller,Ronald E. & Blair,Peter D., 2009. "Input-Output Analysis," Cambridge Books, Cambridge University Press, number 9780521739023.
    25. Guillermo A. Calvo & Alejandro Izquierdo, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    26. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
    27. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    28. repec:fth:nystbu:92-6 is not listed on IDEAS
    29. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the J-curve revisited," Discussion Paper / Institute for Empirical Macroeconomics 65, Federal Reserve Bank of Minneapolis.
    30. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    31. Cristina Arellano & Juan Carlos Conesa & Timothy J. Kehoe, 2012. "Chronic sovereign debt crises in the Eurozone, 2010-2012," Economic Policy Paper 12-4, Federal Reserve Bank of Minneapolis.
    32. Francisco J. Buera & Joseph P. Kaboski, 2012. "The Rise of the Service Economy," American Economic Review, American Economic Association, vol. 102(6), pages 2540-2569, October.
    33. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 500-522, June.
    34. Maurice Obstfeld & Kenneth S. Rogoff, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
    35. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    36. Juan Carlos Conesa & Timothy J. Kehoe & Kim J. Ruhl, 2007. "Modeling great depressions: the depression in Finland in the 1990s," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 31(Nov), pages 16-44.
    37. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-1044, December.
    38. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    39. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    40. Guillermo A. Calvo & Ernesto Talvi, 2005. "Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile," NBER Working Papers 11153, National Bureau of Economic Research, Inc.
    41. Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, September.
    42. Enrique G. Mendoza, 2005. "Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies," NBER Working Papers 11691, National Bureau of Economic Research, Inc.
    43. Cristina Echevarria, 1995. "Agricultural Development vs. Industrialization: Effects of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 631-647, August.
    44. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 35-54, November.
    45. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    46. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 546-569, June.
    47. Molina, Danielken & Roa, Monica, 2014. "The Effect of Credit on the Export Performance of Colombian Exporters," MPRA Paper 56137, University Library of Munich, Germany.
    48. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," Research Department Publications 4474, Inter-American Development Bank, Research Department.
    49. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
    50. Anonymous, 1961. "Organization for European Economic Cooperation," International Organization, Cambridge University Press, vol. 15(1), pages 204-205, January.
    51. Paul Krugman, 2007. "Will there be a dollar crisis? [‘Current account fact and fiction’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(51), pages 436-467.
    52. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-1966, December.
    53. Rudolfs Bems, 2008. "Aggregate Investment Expenditures on Tradable and Nontradable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 852-883, October.
    54. Enrique G. Mendoza, 2005. "Real Exchange Rate Volatility and the Price of Nontradable Goods in Economies Prone to Sudden Stops," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2005), pages 103-148, August.
    55. Kim J. Ruhl, 2008. "The International Elasticity Puzzle," Working Papers 08-30, New York University, Leonard N. Stern School of Business, Department of Economics.
    56. Richard H. Clarida, 2007. "Introduction to "G7 Current Account Imbalances: Sustainability and Adjustment"," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 1-10, National Bureau of Economic Research, Inc.
    57. Enrique G. Mendoza & Vincenzo Quadrini & José-Víctor Ríos-Rull, 2009. "Financial Integration, Financial Development, and Global Imbalances," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 371-416, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    2. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    3. Liao, Junmin, 2020. "The rise of the service sector in China," China Economic Review, Elsevier, vol. 59(C).
    4. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    5. Ju, Jiandong & Lin, Justin Yifu & Wang, Yong, 2015. "Endowment structures, industrial dynamics, and economic growth," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 244-263.
    6. Rudolfs Bems & Julian di Giovanni, 2016. "Income-Induced Expenditure Switching," American Economic Review, American Economic Association, vol. 106(12), pages 3898-3931, December.
    7. William Bednar & Nick Pretnar, 2019. "Home Production with Time to Consume," 2019 Meeting Papers 328, Society for Economic Dynamics.
    8. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    9. Comunale, Mariarosaria & Felice, Giulia, 2022. "Trade and structural change: An empirical investigation," International Economics, Elsevier, vol. 171(C), pages 58-79.
    10. Joseph Steinberg, 2019. "On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 200-223, January.
    11. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.
    12. Lifeng Zhang, 2015. "A Multi-sector Model of Public Expenditure and Growth," Journal of Economics, Springer, vol. 115(1), pages 73-93, May.
    13. Sáenz, Luis Felipe, 2022. "Time-varying capital intensities and the hump-shaped evolution of economic activity in manufacturing," Journal of Macroeconomics, Elsevier, vol. 73(C).
    14. Meza, Felipe & Urrutia, Carlos, 2011. "Financial liberalization, structural change, and real exchange rate appreciations," Journal of International Economics, Elsevier, vol. 85(2), pages 317-328.
    15. Berlingieri, Giuseppe, 2013. "Outsourcing and the rise in services," LSE Research Online Documents on Economics 51532, London School of Economics and Political Science, LSE Library.
    16. van Neuss, Leif, 2018. "Globalization and deindustrialization in advanced countries," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 49-63.
    17. James Bessen, 2018. "Artificial Intelligence and Jobs: The Role of Demand," NBER Chapters, in: The Economics of Artificial Intelligence: An Agenda, pages 291-307, National Bureau of Economic Research, Inc.
    18. Murat Ungor, 2017. "Productivity Growth and Labor Reallocation: Latin America versus East Asia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 25-42, March.
    19. Romelli, Davide & Terra, Cristina & Vasconcelos, Enrico, 2018. "Current account and real exchange rate changes: The impact of trade openness," European Economic Review, Elsevier, vol. 105(C), pages 135-158.
    20. Perez Sebastian,Fidel & Steinbuks,Jevgenijs & Feres,Jose Gustavo & Trotter,Ian Michael, 2020. "Electricity Access and Structural Transformation : Evidence from Brazil's Electrification," Policy Research Working Paper Series 9182, The World Bank.

    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    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:red:sed013:1089. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.