The macroeconomic effects of a transfer of resources from debtor to creditor 1/5  BIS central bankers' speeches  countries is an old issue, going back to the debate between Keynes and Ohlin about Germany’s international obligations after World War I. In recent decades, Maury Obstfeld and Ken Rogoff 4 have pointed out in a series of papers that the basic mechanism of the adjustment results in a transfer of real resources from debtor countries to surplus countries, regardless of the drivers of global rebalancing. In the debtor country, there is a clear macroeconomic cost related to a drop in domestic spending and welfare, leading to large negative output gaps and high unemployment rates, and in turn putting strong downward pressures on wages. This is typically what we saw in the euro area, where the adjustment contributed to the very different dynamics of unit labour costs across countries [Slide 5], and therefore led to relative price adjustments. In cumulative terms since 2007, Germany has seen real exchange rate appreciation of about 8% relative to France, and 20% relative to Spain, although we should take into account in these dynamics the large gains in German competitiveness before the crisis. The adjustment relied mainly on nominal adjustment in deficit countries. The link between the current account and the real exchange rate is still subject to considerable debate among academics.
Chart 4: Switch from services to goods has been a global phenomenon  Sources: OECD Quarterly National Accounts, IMF World Economic Outlook and Bank calculations. Chart 5: Production limits have led to bottlenecks and steep price rises for some traded goods  Nor have these shifts been limited to goods versus services. In the UK, there seems to be quite a bit of divergence in demand even within sectors, not just between them. Some of this may reflect differences across regions in the strength of the recovery – there are indications that activity has been slower to return in cities than in less urban areas. And whatever the underlying causes of this dispersion, it seems to have resulted in a degree of mismatch in the labour market. Some firms are finding it hard to recruit people, even as others have kept significant numbers on furlough. If only at the margin, this mismatch may have added to  5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  near-term pressure on wages. The full-time pay of those on furlough doesn’t fall but, where there are shortages, firms have to pay more4. In January, I felt that these mismatches would probably get ironed out over time. If the pandemic had caused significant shifts in demand those would be reversed as economies recovered: we were likely to see the strongest growth in the areas hardest hit during the downturn, and in which there was therefore more spare capacity.