Saturday, 31 March 2012: 3:35 PM
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 McKibbin and Stoeckel (2010) explored the effects
of this fiscal adjustment in advanced economies on the global economic outlook. This
papers focuses more closely 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.
in major advanced economies will inevitably lead to a period of fiscal consolidation in
coming years. In an earlier paper McKibbin and Stoeckel (2010) explored the effects
of this fiscal adjustment in advanced economies on the global economic outlook. This
papers focuses more closely 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.