Persistence of Global

Transcription

1 China, the US, and the Persistence of Global Imbalances Menzie D. Chinn University of Wisconsin, Madison and NBER Intra-European Imbalances, Global Imbalances, International Banking, and International ti Financial i Stability Universitӓt Leipzig & DIW, Berlin, Sept. 2012

2 Imbalances Past, Present and Possible Future 4 3 Discrepancy 2 ROW 1 CHN+EMA OCADC 0 DEU+JPN 1 OIL 2 US Source: IMF, WEO, April. 2012

3 Three Questions What are the prospects for global rebalancing between China and the US? Can we answer this question without addressing the causes of the imbalances? Can rebalancing occur without giving up on stabilization?

4 On the Origins of Current Account Imbalances Five (not mutually exclusive) explanations Saving-investment balance Intertemporal approach Mercantilism Global saving glut Distortions in (domestic) financial markets

5 Projections from an Empirical Model (Chinn, Eichengreen, Ito, 2011) Budget balances matter for certain countries (US, UK) Saving glut variables (financial development, openness, and institutional development) matter Ignorance reigns (large, unexplained country-specific component) 2000 s HH leveraging drove the crisis. 5

6 US Misprediction United States period Current Account % of GDP lower limit Fitted values upper limit Source: Chinn, Eichengreen, Ito (2011) 6

7 China Misprediction China period Current Account % of GDP lower limit Fitted values upper limit Source: Chinn, Eichengreen, Ito (2011) 7

8 The Sources of US CA Balances Source: Chinn, Eichengreen, Ito (2011) 8

9 The Sources of Chinese CA Balances Source: Chinn, Eichengreen, Ito (2011) 9

10 More Conclusions, and Three Caveats Fiscal consolidation in the US is not enough to shrink CA balances More rapid dfinancial ldevelopment in China is not enough either Much of is unexplained Because we find much of the f cast error is associated with HH leverage, reversion to pre-boom norms might drive most of rebalancing 10

11 China: The Imperative for Policy Change Source: Kroeber, CEQ, Mar 10 Source: Ma & Yi, BIS WP 312 (Jun 10)

12 Conventional Wisdom Consumption is low because labor income is low HH saving is high h because of underprovision of social/health services Corporate saving is high because of financial market distortions Ma, McCauley and Lam dissent 12

13 What Do Recent Forecast Revisions i Signify? if Source: Ahuja, Chalk, Nabar, N Daiye and Porter,

14 Interpretation t ti Forecasts conditional on constant real effective exchange rates And growth forecasts from April But slowdown might be even more pronounced than assumed Ahuja et al. do not believe the decrease is due to higher h consumption, lower national saving. 14

15 Getting to the Medium Run: Recession and Rebalancing? The CEI approach abstracts from cyclical factors Growth in the emerging markets and recession in euro area, US, constrains CA imbalances But slow growth in high income countries hinders structural and policy adjustment 15

16 US Imbalances Returning Net exports ex oil to GDP [right scale] Log real value of USD [left scale] Net exports to GDP [right scale] Source: BEA, 2012Q2 2 nd rel., Federal Reserve 16

17 Chinese Trade Balance Stabilizes Annualized trade balance (bn USD) [right axis] Log real value.0 of CNY [left scale] Source: IMF, Direction of Trade, BIS 17

18 And Shrinks as Share of GDP Trade balance to GDP [right axis] Log real value of CNY [left scale] Source: China Bureau of National Statistics, IMF, Direction of Trade, BIS 18

19 The Growth Discrepancy Shrinks GDP growth, y/y (%) China US Source: BEA, 2012Q2 2 nd rel., ADB ARIC 19

20 Adjustment Will Depend upon the Exchange Rate Not because it s the most powerful effect Exactly because (1) it can be controlled (by the Chinese), and (2) it has a measurable effect. Cheung et al. find large price elasticities for exports, and for imports (after controlling for productivity). 20

21 The RMB and the Rest (of Asia), I Korea Malaysia Taiwan China Singapore 0.76 Thailand

22 The RMB and the Rest (of Asia), II Malaysia China Thailand Taiwan Korea Singapore 22

23 Summing Up We do not well understand the strength of individual policy measures Over the medium run, forces should push toward smaller imbalances, but depends on structural adjustment In the absence of those structural adjustments, exchange rates would be the only ready tool 23