Global Rebalancing: The Macroeconomic Impact on the United Kingdom

26 Pages Posted: 22 Apr 2011  

Alex Haberis

Bank of England

Bojan Markovic

EBRD - Economics, Policy and Governance; University of Birmingham

Karen Mayhew

Bank of England - Monetary Analysis

Pawel Zabczyk

CCBS, Bank of England

Date Written: April 15, 2011

Abstract

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.

Keywords: Global Imbalances, Current account, DSGE models

JEL Classification: F41, F47, D58

Suggested Citation

Haberis, Alex and Markovic, Bojan and Mayhew, Karen and Zabczyk, Pawel, Global Rebalancing: The Macroeconomic Impact on the United Kingdom (April 15, 2011). Bank of England Working Paper No. 421. Available at SSRN: https://ssrn.com/abstract=1814984 or http://dx.doi.org/10.2139/ssrn.1814984

Alex Haberis (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Bojan Markovic

EBRD - Economics, Policy and Governance ( email )

One Exchange Square
London EC2A 2JN
United Kingdom

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Karen Mayhew

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Pawel Zabczyk

CCBS, Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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