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

30 Pages Posted: 9 Mar 2011

See all articles by Isabelle Méjean

Isabelle Méjean

affiliation not provided to SSRN

Pau Rabanal

International Monetary Fund

Damiano Sandri

International Monetary Fund (IMF) - Research Department

Date Written: March 2011

Abstract

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.

Keywords: Asia, Bilateral trade, China, People's Republic of, Current account, Economic models, Emerging markets, Export prices, Exports, Price elasticity, Real effective exchange rates, Terms of trade, United States

Suggested Citation

Méjean, Isabelle and Rabanal, Pau and Sandri, Damiano, Current Account Rebalancing and Real Exchange Rate Adjustment between the U.S. And Emerging Asia (March 2011). IMF Working Papers, Vol. , pp. 1-29, 2011. Available at SSRN: https://ssrn.com/abstract=1780804

Isabelle Méjean

affiliation not provided to SSRN

No Address Available

Pau Rabanal

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

Damiano Sandri

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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