Global Rebalancing with Gravity: Measuring the Burden of Adjustment

44 Pages Posted: 10 Mar 2008 Last revised: 31 Mar 2008

See all articles by Robert Dekle

Robert Dekle

University of Southern California - Department of Economics

Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Samuel S. Kortum

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 2008

Abstract

We use a forty-two country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDP's, real wages, and real absorption. How much relative GDP's need to change depends on flexibility of two forms: factor mobility and the adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, US GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.

Suggested Citation

Dekle, Robert and Eaton, Jonathan and Kortum, Samuel S., Global Rebalancing with Gravity: Measuring the Burden of Adjustment (March 2008). NBER Working Paper No. w13846. Available at SSRN: https://ssrn.com/abstract=1104183

Robert Dekle (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
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Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
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212-998-8951 (Phone)
212-995-3932 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/eatonj/

National Bureau of Economic Research (NBER)

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Samuel S. Kortum

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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