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Recession and rebalancing: How the housing and credit crises will impact US real activity

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  • von Arnim, Rudiger

Abstract

This paper assesses how the current housing and credit crisis will impact US real activity, and how recession interacts with adjustment of global imbalances. A simple real-side model with decreasing returns to factors and non-clearing goods and labor markets is disaggregated into traded and non-traded sectors and three regions (US, EU and Asia). A three region model offers two degrees of freedom and six candidate variables for endogeneity in international accounts. Applying standard income and elasticities approaches as well as a less standard "Bretton Woods II" closure in simulations suggests external imbalances can be reduced in the current recession with a mix of fiscal expansion and some Asian real appreciation.

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  • von Arnim, Rudiger, 2009. "Recession and rebalancing: How the housing and credit crises will impact US real activity," Journal of Policy Modeling, Elsevier, vol. 31(3), pages 309-324, May.
    • Handle: RePEc:eee:jpolmo:v:31:y:2009:i:3:p:309-324
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    2. Cripps, Francis & Izurieta, Alex & Singh, Ajit, 2011. "Global imbalances, under-consumption and overborrowing: the state of the world economy & future policies," MPRA Paper 39049, University Library of Munich, Germany.
    3. Armon Rezai, 2015. "Demand and distribution in integrated economies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(5), pages 1399-1414.
    4. Armon Rezai, 2011. "The Political Economy Implications of General Equilibrium Analysis in Open Economy Macro Models," Working Papers 1111, New School for Social Research, Department of Economics.
    5. Arslan, Yavuz & Kılınç, Mustafa & Turhan, M. İbrahim, 2015. "Global imbalances, current account rebalancing and exchange rate adjustments," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 324-341.
    6. Raymond TORRES, 2010. "Incomplete crisis responses: Socio-economic costs and policy implications," International Labour Review, International Labour Organization, vol. 149(2), pages 227-237, June.
    7. Cripps, F. & Izurieta, A. & Singh, A., 2011. "Global Imbalances, Under-Consumption and Over-Borrowing: The State of the World Economy and Future Policies," Working Papers wp419, Centre for Business Research, University of Cambridge.
    8. Fracasso, Andrea & Schiavo, Stefano, 2009. "Global imbalances, exchange rates adjustment and the crisis: Implications from network analysis," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 601-619, September.
    9. Wadud, I.K.M. Mokhtarul & Bashar, Omar H.M.N. & Ahmed, Huson Joher Ali, 2012. "Monetary policy and the housing market in Australia," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 849-863.

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