This paper extends the model of Engler et al. (2007) on the adjustment of the
US current account to a three-country world economy. This allows an analysis
of the differential impact of a reversal of the US current account on Europe
and Asia. In particular, the outcomes under different exchange rate policies
are analysed. The main finding is that large factor re-allocations from non-
tradables to tradables will be necessary in the US. The direction of factor
re-allocation in Asia depends on whether the "Bretton-Woods-II" regime of
unilaterally fixed or manipulated exchange rates in Asia is continued. If this
is the case, the tradables sector and the current account surplus will
continue to grow even when the US deficit closes. The flip side of this result
is that Europe will face a huge real appreciation and an enormous current
account deficit. With floating exchange rates worldwide, the impact on Europe
will be limited while Asia´s tradables sector will shrin