Working Paper: NBER ID: w13846
Authors: Robert Dekle; Jonathan Eaton; Samuel Kortum
Abstract: We use a forty-two country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDP's, real wages, and real absorption. How much relative GDP's need to change depends on flexibility of two forms: factor mobility and the adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, US GDP falls by 30 percent relative to the world's. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.
Keywords: global rebalancing; gravity model; current account imbalances; relative wages; GDP adjustment
JEL Codes: F10; F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current account deficit (F32) | relative GDP of the US compared to Japan (N12) |
| relative GDP of the US compared to Japan (N12) | domestic prices (P22) |
| current account balance (F32) | wage in manufacturing relative to nonmanufacturing (J31) |