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Global fiscal adjustment and trade rebalancing

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Listed author(s):
  • McKibbin, Warwick J
  • Stoeckel, Andrew B
  • Lu, YingYing

Abstract

The emergence of substantial fiscal deficits and a large build up of government debt in major advanced economies will inevitably lead to a period of fiscal consolidation in coming years. In an earlier paper, McKibbin and Stoeckel (2010) explored the effects of this fiscal adjustment in advanced economies on the global economic outlook. This paper focuses on the differences between the impacts of fiscal policy in advanced versus emerging economies. In particular, the need for more fiscal spending on infrastructure in emerging economies and the need for fiscal consolidation in advanced economies leads naturally to the question of what this asymmetric fiscal adjustment might do to global trade balances as well as global economic growth over the coming decades. The adjustment needed in both regions is substantial and the asymmetry of the adjustment implies important consequences for trade and capital flows between regions as well as asset price adjustments within and between regions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6044.

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Date of creation: 01 Apr 2012
Handle: RePEc:wbk:wbrwps:6044
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Keywords: Economic Theory&Research; Debt Markets; Currencies and Exchange Rates; Emerging Markets; Investment and Investment Climate;

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Cited by:

  1. Ifrim Mihaela, 2015. "Post-Crisis Fiscal Dilemmas In Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 185-189, August.
  2. Lin, Justin Yifu & Doemeland, Doerte, 2012. "Beyond Keynesianism : global infrastructure investments in times of crisis," Policy Research Working Paper Series 5940, The World Bank.

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