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Global Imbalances and Structural Change in the United States

  • Kim Ruhl

    (New York University Stern School of Busi)

  • Joseph Steinberg

    (Univ of Minnesota)

  • Timothy Kehoe

    (University of Minnesota)

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.

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File URL: https://economicdynamics.org/meetpapers/2013/paper_1089.pdf
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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1089.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1089
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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