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

By Damiano Sandri, Pau Rabanal, Isabelle Mejean

March 1, 2011

Preview Citation

Format: Chicago

Damiano Sandri, Pau Rabanal, and Isabelle Mejean. Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia, (USA: International Monetary Fund, 2011) accessed December 3, 2024

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.

Subject: Consumption, Export prices, Imports, Terms of trade, Trade balance

Keywords: WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/046
Stock No:

WPIEA2011046
ISBN:

9781455218967
ISSN:

1018-5941

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