Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/66946
Authors: 
Beaton, Kimberly
De Resende, Carlos
Lalonde, René
Snudden, Stephen
Year of Publication: 
2010
Series/Report no.: 
Bank of Canada Discussion Paper 2010-4
Abstract: 
The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered.
Subjects: 
balance of payments and components
business fluctuations and cycles
international topics
recent economic and financial developments
JEL: 
E21
F01
F32
Document Type: 
Working Paper
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