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Debt Dynamics and Global Imbalances: Some Conventional Views Reconsidered

Author/Editor: Meredith, Guy
Authorized for Distribution: January 1, 2007
Electronic Access: Free Full Text (PDF file size is 572KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We use a general-equilibrium model to explain the rise in global trade and payments imbalances since the mid-1990s, and then to construct adjustment paths to a steady state. Assuming that the shocks giving rise to the imbalances do not suddenly reverse, simulated movements in the U.S. trade deficit and exchange rate are smaller and more gradual than suggested by partial-equilibrium analyses. An important factor reducing the size of the adjustments is a simulated real interest rate on U.S. external liabilities that is below both the interest rate on external assets and the U.S. real economic growth rate. In addition, the adjustment takes place over an extended period without significantly raising the share of U.S. assets in foreign portfolios, in part because depreciation of the dollar requires continued foreign accumulation of U.S. assets just to keep their portfolio share constant.
 
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Series: Working Paper No. 07/4
Subject(s): Debt | United States | Balance of payments | Balance of trade | Interest rates | Economic growth | Economic models
Author's keyword(s): Debt dynamics; global imbalances; international adjustment
 
English  
    Published:   January 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007004   Pages:   54
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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