Global Rebalancing: The Macroeconomic Impact on the United Kingdom
Bank of England
National Bank of Serbia; Bank of England
Bank of England - Monetary Analysis
Bank of England
April 15, 2011
Bank of England Working Paper No. 421
This paper considers the implications for the United States, the United Kingdom and the rest of the world (ROW) of shocks that may contribute to a further reduction in global current account imbalances using a dynamic stochastic general equilibrium (DSGE) model. We consider a shock that increases domestic demand in the ROW; a shock that reduces domestic demand in the United States; and a supply shock that raises US productivity relative to other countries. The impact on UK output and inflation depends on the nature of the shock that drives global rebalancing. An increase in domestic demand in the ROW would raise UK exports and output, but would also contribute to increased inflationary pressure in the United Kingdom. Further weakness in US domestic demand is likely to weigh on UK output and inflation. Productivity gains in the United States relative to other countries would worsen the United Kingdom’s current account position, pushing down on output, but would lead to reduced inflationary pressure in the United Kingdom.
Number of Pages in PDF File: 26
Keywords: Global Imbalances, Current account, DSGE models
JEL Classification: F41, F47, D58working papers series
Date posted: April 22, 2011
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