Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia

Author/Editor:

Damiano Sandri ; Isabelle Mejean ; Pau Rabanal

Publication Date:

March 1, 2011

Electronic Access:

Free Full text (PDF file size is 1018 KB).Use the free Adobe Acrobat Reader to view this PDF file

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:

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.

Series:

Working Paper No. 11/46

Subject:

English

Publication Date:

March 1, 2011

ISBN/ISSN:

9781455218967/1018-5941

Stock No:

WPIEA2011046

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

29

Please address any questions about this title to publications@imf.org