Another Take on Global Imbalances
Nanubhai Desai, my colleague over at GEM has a very interesting note up about the US current account deficit and global macroeconomic imbalances. Mr. Desai essentially links global imbalances to average levels of oil prices and the rise of China. He concludes ...
In my view, the driving forces of global imbalances today are a mix of the ‘old’ and the ‘new’ – of the familiar and the unfamiliar – with each having a relatively equal role. High energy prices are the driving force of much of the imbalances today; but they are helped by another seismic structural change – the rise of China. Neither force is likely to be as strong in the next five years as it was in the last five, so it seems plausible that the imbalances could unwind a bit – with the US current account deficit coming down to 4.5%-5.5% of GDP by 2010. The question going forward is whether even that level can be sustained indefinitely. For now though, we should be content in knowing that returning to 2002 levels may be within the realm of possibility.
The whole note is well worth a read!
Yet another take on Global Imbalances or more specifically the US deficit on the external balances in a paper just published by the ECB esearch department and authored by Rudolfs Bems, Luca Dedolaand Frank Smets. The authors suggest that we look within the US for the reasons and structural drivers of the US external deficit.
This paper investigates the role of three likely factors in driving the steady deterioration of the US external balance: US technology developments, changes in the US government fiscal position and the Fed’s monetary policy. Estimating several Vector Autoregressions on US data over the period 1982:2 to 2005:4 we identify five
structural shocks: a multi-factor productivity shock; an investment-specific technology shock; a monetary policy shock; and a fiscal revenue and spending shock. Together these shocks can account for the deterioration and subsequent reversal of the trade balance in the 1980s. Productivity improvements and fiscal and monetary policy easing also play an important role in the increase of the external deficit since 2000, but these structural shocks can not explain why the trade balance deteriorated in the second half of the 1990s.