The New Global Balance (original) (raw)

Global Imbalances, the International Crisis and the Role of the Dollar

2011

The paper investigates the links between international global imbalances and the recent international financial crisis. It also focuses on the asymmetries of the dollar standard exchange rate regime. Global imbalances preceded the crisis but were one of the ingredients that led to the financial crash of 2007-2008. The paper rejects the ‘saving glut' explanation of the US trade deficit and

Crisis and Global Imbalances: the Fragility of the Current International Monetary System

Abstract: JEL Classification: E41, E42, F32, F41. Global structural factors both monetary and real played a prominent role in the burst of the sub- prime crisis: 1) the so-called Bretton Woods II international monetary system; 2) the reduction of US real investment return compared with competing countries. We develop a two-country partial equilibrium model to analyze the impact of these factors and macroeconomic policies on the US current account and asset prices. The excess savings of US nonfinancial business sector from 2000-2001 has undermined the stability of the Bretton Woods II system. Accommodative US monetary and fiscal policies have mitigated the imbalances but in the long term structural factors prevailed. Only a recovery of the US real capital profitability can ensure long run coexistence between the present model of global development and cur- rent international monetary system. Keywords: international monetary system, current account, saving investment, international liquidity, asset prices.

Global Imbalances and Financial Stability

This paper discusses two opposing views on global imbalances: The "traditional view", which regards the imbalances as a threat to global economic and financial stability, and the "new paradigm" view, which considers that they are the natural consequence of economic and financial globalization. In terms of their policy implications, the traditional view focuses on monetary and fiscal policy decisions in the United States that need to be urgently reversed to avoid an abrupt unwinding of the imbalances involving a sell-off of dollar assets, a sharp increase in U.S. interest rates, and a hard landing for the global economy. By contrast, the new paradigm view considers that the imbalances will be resolved smoothly through the normal functioning of markets. The paper argues that an abrupt unwinding of imbalances is highly unlikely and advances a number of arguments in support of the new paradigm view.

Global Imbalances, the U.S. Dollar, and How the Crisis at the Core of Global Finance Spread to 'Self-Insuring' Emerging Market Economies

SSRN Electronic Journal, 2000

This paper investigates the spread of what started as a crisis at the core of the global financial system to emerging economies. While emerging economies had exhibited some resilience through the early stages of the financial turmoil that began in the summer of 2007, they have been hit hard since mid-2008. Their deteriorating fortunes are only partly attributable to the collapse in world trade and sharp drop in commodity prices. Things were made worse by emerging markets' exposure to the turmoil in global finance itself. As "innocent bystanders," even countries that had taken out "self-insurance" proved vulnerable to the global "sudden stop" in capital flows. We critique loanable funds theoretical interpretations of global imbalances and offer an alternative explanation that emphasizes the special status of the U.S. dollar. Instead of taking out even more self-insurance, developing countries should pursue capital account management to enlarge their policy space and reduce external vulnerabilities.

Global imbalances and the dollar

2011

KRSTE SHAJNOSKI assoc. prof. PhD MARGARITA MATLIEVSKA assoc. prof. PhD, STEVAN GABER assoc. prof. PhD, EMILIJA MITEVA KACARSKI M.Sc., ELENA NIKOLOVA M.Sc. Abstract

Financial flows, financial crises, and global imbalances

Journal of International Money and Finance, 2012

In this lecture I document the proliferation of gross international asset and liability positions and discuss some consequences for individual countries' external adjustment processes and for global financial stability. In light of the rapid growth of gross global financial flows and the serious risks associated with them, one might wonder about the continuing relevance of the net financial flow measured by the current account balance. I argue that global current account imbalances remain an essential target for policy scrutiny, for financial as well as macroeconomic reasons. Nonetheless, it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities.