Global Fiscal Adjustment and Trade Rebalancing

31 Pages Posted: 26 Jul 2014

See all articles by Warwick J. McKibbin

Warwick J. McKibbin

Australian National University

Andrew Stoeckel

Australian National University (ANU)

Yingying Lu

Australian National University

Multiple version iconThere are 3 versions of this paper

Date Written: July 2014

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.

Suggested Citation

McKibbin, Warwick J. and Stoeckel, Andrew and Lu, Yingying, Global Fiscal Adjustment and Trade Rebalancing (July 2014). The World Economy, Vol. 37, Issue 7, pp. 892-922, 2014, Available at SSRN: https://ssrn.com/abstract=2472499 or http://dx.doi.org/10.1111/twec.12185

Warwick J. McKibbin (Contact Author)

Australian National University ( email )

Crawfrod School of Public Policy
Canberra, ACT 2600
Australia
02-61250301 (Phone)
02-62735575 (Fax)

HOME PAGE: http://www.sensiblepolicy.com

Andrew Stoeckel

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Yingying Lu

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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