Debt Dynamics and Global Imbalances: Some Conventional Views Reconsidered

 
Author/Editor: Meredith, Guy
 
Publication Date: January 01, 2007
 
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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.
 
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
Publication Date: January 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007004 Pages: 54
Price:
US$18.00 (Academic Rate:
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