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Transpacific Imbalances and Macroeconomic Codependency

Author

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  • Thorbecke, Willem

    (Asian Development Bank Institute)

Abstract

Current account deficits in the United States (US) and current account surpluses in East Asia are an enduring part of the global economic landscape. They are supported by low saving in the US and by reserve accumulation in Asia. This paper argues that this strategy is causing macroeconomic problems for the People’s Republic of China (PRC). Inflation is rising, and interest rates are set too low because the yuan is closely linked to the US dollar. Low interest rates have fueled overinvestment in physical capital and rising real estate prices. They also cause savers to earn negative returns on their bank deposits.

Suggested Citation

  • Thorbecke, Willem, 2011. "Transpacific Imbalances and Macroeconomic Codependency," ADBI Working Papers 299, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0299
    as

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    References listed on IDEAS

    as
    1. Willem Thorbecke, 2011. "How Elastic is East Asian Demand for Consumption Goods?," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 950-962, November.
    2. Thorbecke, Willem & Lamberte, Mario & Komoto, Ginalyn, 2010. "Promoting Learning and Industrial Upgrading in ASEAN Countries," ADBI Working Papers 250, Asian Development Bank Institute.
    3. Adams , Charles & Park, Donghyun, 2009. "Causes and Consequences of Global Imbalances: Perspective from Developing Asia," Asian Development Review, Asian Development Bank, vol. 26(1), pages 19-47.
    4. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
    5. Ma, Guonan & McCauley, Robert N., 2011. "The evolving renminbi regime and implications for Asian currency stability," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 23-38, March.
    6. THORBECKE, Willem, 2009. "Can East Asia be an Engine of Growth for the World Economy?," Discussion papers 09006, Research Institute of Economy, Trade and Industry (RIETI).
    7. Shujiro Urata & Toshiyuki Matsuura & Yuhong Wei, 2006. "International Intrafirm Transfer of Management Technology by Japanese Multinational Corporations," Discussion papers 06006, Research Institute of Economy, Trade and Industry (RIETI).
    8. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal, 2011. "China's Foreign Trade in the Perspective of a More Balanced Economic Growth," Working Papers 2011-03, CEPII research center.
    9. repec:cii:cepill:2010-307 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    reserve accumulation; sterilization policy; transpacific imbalances; macroeconomic codependency;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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