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Rebalancing through expenditure and price changes

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  • Rudiger von Arnim
  • K.P. Prabheesh

Abstract

This paper puts forth a Neo-Kaleckian open economy model of two countries in order to investigate adjustment of US--China external imbalances. First, a stylized fixed mark-up model is presented, and discussed based on graphical analysis. Second, we present estimates of bilateral income and price elasticities of imports. Third, we employ the model for simulation analysis. Specifically, we randomly distribute expenditure change across government, investment and imports and calculate the exchange rate change necessary to lead to an equal change in the bilateral external imbalance. Doing so repeatedly allows us to estimate probability distributions of endogenous variable changes.

Suggested Citation

  • Rudiger von Arnim & K.P. Prabheesh, 2013. "Rebalancing through expenditure and price changes," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(4), pages 531-556, July.
    • Handle: RePEc:taf:irapec:v:27:y:2013:i:4:p:531-556
    DOI: 10.1080/02692171.2012.760067
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    References listed on IDEAS

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    1. Rudiger von Arnim & Steve Bannister & Nathan Perry, 2013. "A global model of recovery and rebalancing," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(4), pages 889-920.
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    Cited by:

    1. Mohammed, Mikidadu, 2018. "Do Import Tariffs Generate Stagflationary Tendencies?," MPRA Paper 95128, University Library of Munich, Germany, revised 09 Apr 2019.

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