Sustainable Adjustment of Global Imbalances
This paper uses NIESR’s global econometric model, NiGEM, to analyse possible adjustment paths for the US current account, if its current level of 6 per cent of GDP proves unsustainable. Nominal exchange rate shifts have only a transitory impact on current account balances, so any long-term improvement of the US current account balance would require a real and sustained reduction in domestic absorption, or a rise in foreign absorption. This could be effected through a sequence of exchange rate movements driven by a gradual rise in the risk premium on US assets. This would induce a permanent change in the real exchange rate, and would also reduce domestic absorption in the US due to a rise in real interest rates. Global policy coordination, which involved raising domestic demand in countries such as China and Japan, could speed the process of adjustment and ease the negative impact on the US economy.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +48 22 206 29 00
Fax: +48 22 206 29 01
Web page: http://www.case-research.eu/Email:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sec:cnstan:0343. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarzyna Sidło)
If references are entirely missing, you can add them using this form.