Global Rebalancing with Gravity: Measuring the Burden of Adjustment

This paper uses a 42-country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDPs, real wages, and real absorption. How much relative GDPs need to change depends on flexibility of two forms: factor mobility and adjustmen...

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Bibliographic Details
Published in:IMF staff papers 2008-07, Vol.55 (3), p.511-540
Main Authors: Dekle, Robert, Eaton, Jonathan, Kortum, Samuel
Format: Article
Language:English
Subjects:
Balance of payments
Capital Markets
Contrafactuals
Current accounts
Economic aspects
Economic models
Economic Policy
Economic theory
Economics
Economics and Finance
European monetary union
F12
F30
F31
Foreign exchange
GDP
Gross Domestic Product
International Economics
International trade
Macroeconomics/Monetary Economics//Financial Economics
Manufacturing industries
Manufacturing output
Manycountries
Measurement
Price indices
Price level
Prices and rates
Production measurement
Real gross domestic product
Real wages
Statistics
Studies
Trade deficits
Value added
World economy
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Summary:This paper uses a 42-country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDPs, real wages, and real absorption. How much relative GDPs need to change depends on flexibility of two forms: factor mobility and adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, U. S. GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.
ISSN:1020-7635
2041-4161
1564-5150
2041-417X
DOI:10.1057/imfsp.2008.17