Postponing Global Adjustment: An Analysis of the Pending Adjustment of Global Imbalances

Truman, Edwin M.

doi:10.2139/ssrn.763825

Cited by 20 publications

(22 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…al. (2005), Gourinchas and Rey (2005), Kouparitsas (2005), Kraay and Ventura (2005), Obstfeld and Rogoff (2000, and Truman (2005). 2 These results can be derived easily in a small-country model with log utility of expenditures, and a Cobb-Douglas utility over consumption of traded and non-traded goods, and with no factor mobility.…”

Section: Introductionmentioning

confidence: 94%

The U.S. Current Account Deficit and the Expected Share of World Output

Engel¹,

Rogers²

2006

ERWP

View full text Add to dashboard Cite

We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries -more modest than the growth over the past 20 years -the current account deficit is near optimal levels. We then explore the implications for the real exchange rate. Under some plausible assumptions, the model implies little change in the real exchange rate over the adjustment path, though the conclusion is sensitive to assumptions about tastes and technology. Then we turn to empirical evidence. A test of current account sustainability suggests that the U.S. is not keeping on a long-run sustainable path. A direct test of our model finds that the dynamics of the U.S. current account -the increasing deficits over the past decade -are difficult to explain under a particular statistical model (Markov-switching) of expectations of future U.S. growth. But, if we use survey data on forecasted GDP growth in the G7, our very simple model appears to explain the evolution of the U.S. current account remarkably well. We conclude that expectations of robust performance of the U.S. economy relative to the rest of the advanced countries is a contender -though not the only legitimate contender -for explaining the U.S. current account deficit. JEL codes: F32, F41

show abstract

Section: Introductionmentioning

confidence: 94%

The U.S. Current Account Deficit and the Expected Share of World Output

Engel¹,

Rogers²

2006

ERWP

View full text Add to dashboard Cite

show abstract

“…The best known and most politically-potent set of analyses along these lines have been those that attributed "global imbalances" principally to domestic policy choices by the Chinese government. The core thesis has been that a combination of domestic financial repression (manifested in artificially low interest rates) and pervasive inward capital controls has kept out foreign capital inflows that otherwise might have operated to push up the renminbi's (RMB) exchange rate, mainly with the USD (Goldstein and Lardy 2003;Truman 2005). Scholars constructed sophisticated models designed to demonstrate the degree to which the RMB had deviated from its "true" or "market" exchange rate.…”

Section: The Crucial Question Ismentioning

confidence: 99%

Absolute or relative gains? How status quo and emerging powers conceptualize global finance

Armijo¹,

Echeverri-Gent²

2014

Handbook of the International Political Economy of Monetary Relations

View full text Add to dashboard Cite

The global financial system is in the midst of an uncertain transition. While the global financial crisis has called into question the efficacy and legitimacy of the institutions of global finance, a redistribution of financial resources is transforming the balance of power within the realm of international finance. To understand the trajectory of change from the current scenario, one should understand the perspectives of key strategic actors, which we group into three mental models. Economic liberalism is the modal analytical framework for government and business circles in the United States and other wealthy democracies. Based on the premise that global markets provide efficient and socially optimal outcomes, it underscores the absolute gains they provide. Liberal institutionalism prevails in the academic community of the global "North." It emphasizes that international institutions and networks generate absolute gains by providing global public goods. Finally, economic realism is the dominant cognitive framework among government and academic circles throughout the global "South". It focuses on how the asymmetric control of strategic resources promotes relative gains that reproduce international inequalities. This essay demonstrates how these mental models illuminate debates over three key issues in global finance-capital account liberalization, the international role of the U.S. dollar, and the lessons of the 2008-9 international financial crisis. * The authors would like to thank Thomas, Oatley, Herman Schwartz, Layna Mosley, and Dale Murphy for their comments on earlier versions of this essay. We would also like to thank the members of the APSA Task Force on Difference and Inequality in Developing Societies for provocative deliberations that stimulated our early thinking on these issues. Absolute or Relative Gains? How Status Quo and Emerging Powers Conceptualize Global Finance The global financial system is in the midst of a transition. While the global financial crisis has called into question the legitimacy of the institutions of global finance, a redistribution of financial resources is transforming the balance of power within the realm of international finance. From 1990 to 2012, the G7's share of global GDP (in current US dollars) declined from 65 to 47 percent, while the share of emerging market and developing economies has grown from 20 to 38 percent (IMF/WEO 2013). From 1995 to 2012, the share of emerging market and developing countries in total foreign exchange holdings doubled from 33 to 66 percent (IMF/COFER 2013). In the midst of these changes, increasingly powerful emerging market countries have banded together into groups such as the BRICS (Brazil, Russia, India, China, and South Africa) to increase their leverage over the process of change. These countries, along with the emerging economies of Argentina, Indonesia, Mexico, South Korea, Saudi Arabia and Turkey, have gained a seat at the expanded G20 negotiating table.

show abstract

“…Yet the current crisis compels the United States to a severe readjustment, with extremely painful repercussions for both the American economy and global multilateralism. Due to the use of diff erent analytical strands to interpret the dynamics of global imbalances and to the endogenous character of America's current account balance (Truman 2005), an extremely high number of possible future scenarios have been off ered to explain what appears, even in the times of the crisis, as a surprisingly persistent pattern of international economic relations. Still, the literature has so far paid little attention to the type of adjustment -unilateral, bilateral, or multilateral -each suggested scenario is tied to.…”

Section: Current Global Imbalances Through the Eyes Of Keynesmentioning

confidence: 99%

Global imbalances, monetary disorder, and shrinking policy space: Keynes's legacy for our troubled world

Carabelli¹,

Cedrini²

2010

European Journal of Economics and Economic Policies: Intervention

View full text Add to dashboard Cite

Th e paper aims at showing that revisiting Keynes's early writings on international economic relations and some less well-known episodes of his economic diplomacy, with special attention being paid to the methodological issues involved, may disclose useful insights in understanding the features of his desired new global order. We contrast the three main pillars of Keynes's vision as detected in this revisitation (coordinated multilateral responses to global imbalances, a rational international monetary regime, and enhanced policy space) with the major shortcomings of the current non-system, and show the continuing relevance not only of Keynes's specifi c proposals for global reform, but also, and most importantly, the legacy of his way of reasoning about international economic relations.

show abstract

Postponing Global Adjustment: An Analysis of the Pending Adjustment of Global Imbalances

Cited by 20 publications

References 24 publications

The U.S. Current Account Deficit and the Expected Share of World Output

The U.S. Current Account Deficit and the Expected Share of World Output

Absolute or relative gains? How status quo and emerging powers conceptualize global finance

Global imbalances, monetary disorder, and shrinking policy space: Keynes's legacy for our troubled world

Contact Info

Product

Resources

About