Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-25T04:06:59.080Z Has data issue: false hasContentIssue false
  • English
  • Français

Monetary Policy and Global Imbalances

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
Ian Hurst
Ray Barrell
Affiliation:
National Institute of Economic and Social ResearchUK
Get access Rights & Permissions [Opens in a new window]

Extract

The US current account imbalance has stayed stubbornly high despite the fall in the dollar that we have seen since the beginning of 2003. The exchange rate has fallen by around 15 per cent on average, mainly between the first quarter of 2003 and the first quarter of 2005. As we can see from figure 1, the fall has come in three steps, and each time it fell we might have expected an initial worsening of the current account for a year or so as prices change in advance of quantities (the J curve effect of the first year textbook). Hence we might have expected no sustained improvement until at least a year after the last downward step towards the end of 2004. However, as we can see from figure 2, there is no noticeable improvement in the current account during 2006, suggesting that domestic absorption was rising. At the same time inflation in the US was gradually drifting up under pressure from the weakening exchange rate.

Type
Articles
Information
National Institute Economic Review , Volume 199 , 01 January 2007 , pp. 34 - 39
Copyright
Copyright © 2007 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We would like to thank Dawn Holland and Martin Weale for their comments.

References

Bank of England (2005), ‘The Bank of England Quarterly Model’, by Harrison, R., Nikolov, K., Quinn, M., Ramsay, G., Scott, A. and Thomas, R., Bank of England.Google Scholar
Barrell, R. and Choy, A. (2005), ‘The impact of China on the world and UK economies’, Treasury Committee, House of Commons HC 314 i-ii.Google Scholar
Barrell, R. and Davis, E.P. (2007), ‘Financial liberalisation, consumption and wealth effects in 7 OECD countries’, Scottish Journal of Political Economy, May.10.1111/j.1467-9485.2007.00413.xGoogle Scholar
Barrell, R. and Dury, K. (2000), ‘An evaluation of monetary targeting regimes’, National Institute Economic Review, 174, October.CrossRefGoogle Scholar
Barrell, R., Dury, K. and Hurst, I. (2001), ‘Decision making within the ECB: simple monetary policy rules evaluated in an encompassing framework’, RWI Project Link Conference Volume, Germany.Google Scholar
Barrell, R., Hall, S.G. and Hurst, A.I.H. (2006), ‘Evaluating policy feedback rules using the joint density function of a stochastic model’, Economics Letters, 93 (1), October, pp 1–5.10.1016/j.econlet.2006.03.035CrossRefGoogle Scholar
Barrell, R. and Holland, D. (2006), ‘Correcting global imbalances’, National Institute Economic Review, 197, July, pp. 32–7.10.1177/002795010619700110CrossRefGoogle Scholar
Taylor, J.B. (1993), ‘Discretion versus policy rules in practice’, Carnegie Rochester Conference Series on Public Policy, 39, pp. 195–214.10.1016/0167-2231(93)90009-LCrossRefGoogle Scholar