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Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia
Author:
Mr. Damiano Sandri
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,
Mr. Pau Rabanal
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, and
Ms. Isabelle Mejean
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 046
Language:
English
Publication Date:
01 Mar 2011
DOI:
https://doi.org/10.5089/9781455218967.001
ISBN:
9781455218967
ISSN:
1018-5941
Pages:
29
Keywords:
WP
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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A reduction in the U.S. current account deficit vis-à-vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three-country open economy model of the U.S., China, and other emerging Asia. We compare scenarios where both Chinese and other emerging Asian export prices change by the same proportion to the case where export prices remain constant in one country and increase in the other. Our results are robust to different assumptions about elasticities of substitution and to introducing a high degree of vertical fragmentation in production in the model.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund