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Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia, Damiano Sandri, Pau Rabanal, Isabelle Mejean

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
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I Introduction; II The model; A Simplified version with two countries and only tradable goods; B Three country version of Obstfeld and Rogoff (2007); 1 U.S. households; 2 Chinese and OEA households; 3 Market clearing; III Calibration; A Trade elasticities; B Other parameters; 1 Calibration; IV Rebalancing and relative prices; A Exchange rate adjustment; 1 Responses to a reduction in the U.S. current account deficit; B Robustness; 2 Sensitivity to lower U.S. elasticity between domestic and foreign goods; C Change in home bias
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (57 p.)
Specific Material Designation
Form Of Item

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