Suchergebnisse

Over the past year East Asia has featured prominently in the international debate over the widening global economic imbalances. In particular, China has attracted much attention for the nature of its currency regime and its large trade surplus. Until recently, China pursued a strict policy of tightly fixing the value of the renminbi against the US dollar and, as a result, Chinese exports have remained highly competitive while the US current account position has deteriorated markedly. A substantial widening of China's trade surplus in the first half of this year has sparked a great deal of criticism from the US regarding China's exchange rate regime. Protectionist threats from the US and growing domestic imbalances in the Chinese economy have succeeded in prompting the Chinese authorities to reform their exchange rate regime. On 21 July, Chinese authorities announced the abandonment of the longstanding US dollar peg in favour of a managed system where the renminbi is fixed against a basket of currencies. The specifics of this new exchange rate regime provide ample scope for further renminbi appreciation; however, this will be an orderly and drawn-out process dictated by both economic and market conditions.

In the January Review discussion of the US current account imbalances, we explored the links between the US current account deficit and exchange rates, and focused on the economic adjustments required to correct the US 'triple' deficits. Using NiGEM, we illustrated that a sustained adjustment in the US current account deficit cannot be achieved through a temporary nominal depreciation alone – whether risk or policy driven – but also requires a redressing of the government and household imbalances and a consequent increase in national savings.

In the past three years the US dollar has been declining whilst the US current account deficit has expanded, and these two developments are clearly linked. However, the causes of the decline in the dollar and the solution to the US deficit may not be as closely related as at first may appear. The emergence of a sustained deficit does not automatically necessitate a fall in the exchange rate, and a fall in the exchange rate may not correct such a deficit. Deficits can exist if the currency moves above its sustainable real exchange rate, and a real depreciation can remove such a deficit. Deficits caused by exchange rate movements are likely to be more temporary than those that either emerge for long-term structural reasons or result from structural imbalances in the economy. A structural deficit can be the consequence of low domestic saving or high domestic government borrowing. If domestic investment is very profitable then even high levels of domestic saving may still result in a savings shortfall, and the high returns may induce a structural capital inflow which will produce a sustainable current account deficit as a consequence. All these factors have influenced the increase in the US deficit in the past decade, and it is difficult to see how a correction to the deficit can occur without one of the domestic drivers changing in some way. Here we present a set of simulations using NiGEM to examine the impacts of alternative adjustment scenarios and their global implications. Before adding to the debate about the possible remedies, we will attempt to establish the sources of the current conjuncture, as the alternative adjustment paths for deficits and for the dollar depend on the sources of misalignment.

There is growing interest in examining the short‐term link between survey‐based confidence indicators and real economic activity. This paper builds on previous studies to establish whether there is a short‐term predictive relationship between measures of consumer confidence and actual consumption, in a range of major industrial countries. It then extends such previous analyses by assessing whether this relation has changed over time, and whether we can attribute any time‐varying relation to structural developments in the economy, such as financial deepening and the increasing role of house prices in determination of consumption.