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Global imbalances and financial stability

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  • Noyer, C.
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    Abstract

    Much of the policy debate in coming years will hinge on two questions: have global imbalances contributed to the financial crisis? Is a reduction in global imbalances a prerequisite to ensuring global financial stability? In light of available research and analysis, it is reasonable to argue that common causes likely lay behind both the crisis and global imbalances. They include heterogeneous saving preferences, asymmetric financial development across countries engaged in global financial markets, and the undersupply of liquid and safe assets at the aggregate level. Looking ahead, the international community has to strike the right balance between, on the one hand, countries’ legitimate sovereignty over monetary, capital account, and exchange rate policies and, on the other hand, intensified interdependencies, the global system’s increased complexity, and diverging economic prospects across countries. Rebalancing world demand will no doubt be a gradual, long-run process. To help foster an orderly unwinding, all countries need to ensure that their policies do not create further distortions in the global economy. Several improvements to the international monetary system could be considered to help reduce incentives for distortive policies.

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    Bibliographic Info

    Article provided by Banque de France in its journal Financial Stability Review.

    Volume (Year): (2011)
    Issue (Month): 15 (February)
    Pages: 107-112

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    Handle: RePEc:bfr:fisrev:2011:15:13

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    1. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," NBER Working Papers 14688, National Bureau of Economic Research, Inc.
    2. Jiandong Ju & Shang-Jin Wei, 2007. "Domestic Institutions and the Bypass Effect of Financial Globalization," NBER Working Papers 13148, National Bureau of Economic Research, Inc.
    3. Lane, Philip R. & Shambaugh, Jay C, 2007. "Financial Exchange Rates and International Currency Exposures," CEPR Discussion Papers 6473, C.E.P.R. Discussion Papers.
    4. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2008. "Financial Stability, the Trilemma, and International Reserves," NBER Working Papers 14217, National Bureau of Economic Research, Inc.
    5. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications," IMF Working Papers 06/229, International Monetary Fund.
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