Global Fiscal Adjustment and Trade Rebalancing / Warwick J. McKibbin, Andrew B. Stoeckel and YingYing Lu

Abstract
The emergence of substantial fiscal deficits and a large build up of government debt in major advanced economies will inevitably lead to a period of fiscal consolidation in coming years. In an earlier paper, Asian Economic Papers, 9, 2010 and 54, explored the effects of this fiscal adjustment in advanced economies on the global economic outlook. This paper focuses on the differences between the impacts of fiscal policy in advanced versus emerging economies. In particular, the need for more fiscal spending on infrastructure in emerging economies and the need for fiscal consolidation in advanced economies leads naturally to the question of what this asymmetric fiscal adjustment might do to global trade balances as well as global economic growth over the coming decades. The adjustment needed in both regions is substantial, and the asymmetry of the adjustment implies important consequences for trade and capital flows between regions as well as asset price adjustments within and between regions.

Full-text available in .pdf

Advertisements

Comments do not require moderator approval but this will only last as long as everyone plays fair

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s