McKibbin, Warwick J.Stoeckel, Andrew B.Lu, YingYing2012-04-272012-04-272012-04https://hdl.handle.net/10986/6047The 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 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.CC BY 3.0 IGOACCOUNTINGADJUSTMENT COSTSADVANCED COUNTRIESADVANCED COUNTRYADVANCED ECONOMIESADVANCED ECONOMYAFFILIATED ORGANIZATIONSAGGREGATE CONSUMPTIONAGGREGATE DEMANDAGGREGATE INVESTMENTAGRICULTUREASSET PRICEASSET VALUATIONBANK BALANCE SHEETSBANK POLICYBENCHMARKBOND YIELDSBORROWERBUDGET SURPLUSCAPITAL ACCOUNTCAPITAL ACCUMULATIONCAPITAL FLOWSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL INVESTMENTCAPITAL OUTFLOWCAPITAL OUTFLOWSCAPITAL RETURNCAPITAL RETURNSCAPITAL STOCKCAPITAL STOCKSCENTRAL BANKCENTRAL BANKSCONSOLIDATIONCONSOLIDATIONSCONSUMERSCREDIBILITYCREDIT GROWTHCURRENCYCURRENCY REGIMECURRENT ACCOUNTCURRENT ACCOUNT DEFICITSDEBTDEBT BURDENDEBT LEVELSDEBT RATIOSDEBT SERVICEDEBTSDECLINE IN INVESTMENTDEPRECIATIONDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIMINISHING RETURNSDISPOSABLE INCOMEDURABLESECONOMIC CONDITIONSECONOMIC CONTRACTIONECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC OUTCOMESECONOMIC OUTLOOKECONOMIC POLICYECONOMIC RESEARCHELASTICITYEMERGING ECONOMIESEQUILIBRIUMEURO ZONEEXCHANGE RATEEXCHANGE RATE APPRECIATIONEXCHANGE RATE POLICYEXCHANGE RATESEXPANSIONARY MONETARY POLICYEXPECTED RETURNSEXPENDITUREEXPENDITURE INCREASEEXPORTERSEXPORTSFEDERAL RESERVEFINANCIAL ASSETSFINANCIAL CAPITALFINANCIAL CRISISFINANCIAL FLOWFISCAL BALANCEFISCAL BALANCESFISCAL CONSOLIDATIONFISCAL DEFICITFISCAL DEFICITSFISCAL DISCIPLINEFISCAL POLICYFISCAL POSITIONFOREIGN EXCHANGEFREE BONDGDPGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM MODELGLOBAL ECONOMYGLOBAL TRADEGOVERNMENT BORROWINGGOVERNMENT DEBTGOVERNMENT DEFICITGOVERNMENT DEFICITSGOVERNMENT EXPENDITUREGOVERNMENT INVESTMENTGOVERNMENT SPENDINGGROSS DEBTHOLDINGHUMAN CAPITALIMBALANCEIMBALANCESIMPORTSINCOME LEVELSINFLATIONINFLOW OF CAPITALINFRASTRUCTURE INVESTMENTINFRASTRUCTURE INVESTMENTSINITIAL DEBTINTEREST PAYMENTSINTEREST RATE CHANGESINTEREST RATESINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL MACROECONOMICSLENDERLEVEL OF DEBTLONG BONDLOOSE MONETARY POLICYMACROECONOMIC ANALYSISMACROECONOMIC EFFECTSMACROECONOMICSMARGINAL PRODUCTMARKET FAILUREMARKET FORCESMARKET VALUATIONMONETARY ECONOMICSMONETARY FUNDMONETARY POLICYMONETARY POLICY INDEPENDENCEMULTIPLIERSNATIONAL CURRENCYNET CAPITALNET EXPORTSNOMINAL EXCHANGE RATENOMINAL INTEREST RATENOMINAL INTEREST RATESNOMINAL WAGEOPTIMIZATIONOTHER CURRENCIESOUTPUTOUTPUT LOSSESPEGPOLITICAL ECONOMYPOPULATION GROWTHPOSITIVE SPILLOVERPRIVATE CAPITALPRIVATE INVESTMENTPRIVATE RETURNSPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC BORROWINGPUBLIC DEBTPUBLIC DEFICITSPUBLIC EXPENDITURERATE OF RETURNRATES OF RETURNREAL EXCHANGE RATESREAL GDPREAL INTERESTREAL INTEREST RATESRECESSIONRETURNRISK PREMIUMSSAVINGSSHORT INTERESTSOVEREIGN BONDSOVEREIGN RISKSTEADY STATESTOCK CHANGESTOCK DATATAXTAX LIABILITIESTELECOMMUNICATIONSTRADE BALANCETRADE BALANCESTRADE BARRIERTRADE DEFICITTRADE PATTERNSTRADE PROTECTIONTRADE SURPLUSESTRUSTEESUNEMPLOYMENTVALUE ADDEDWEALTHWORLD ECONOMYWorld Bank10.1596/1813-9450-6044