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When Global Imbalances Unwind: Challenges for the Asian Region

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Author Info

  • Piti Disyatat

    (Bank of Thailand)

  • Surach Tanboon

    (Bank of Thailand)

Abstract

The current configuration of global imbalances, the financing that they entail, and the possible economic fallout that may occur as they unwind have become hot topics of discussion lately and understandably so since the scale and number of countries involved are unprecedented. The aim of this paper is to highlight the challenges faced by the Asian region in dealing with the repercussions of unwinding global imbalances, especially in light of extensive intra-regional production-trade linkages and their dependence on US demand, as well as motivate the need for serious policy dialogue before an abrupt adjustment takes place so that policy coordination needed in dealing with the fallout can be achieved more quickly and effectively. It does so by emphasizing the inherent fragility of the current setup and, in particular, the dependence of the status quo on a particular pattern of private capital flows rather than official flows. It argues that the real role played by the latter is to help coordinate private sector expectations on a future path of the US dollar that ensures continued financing of the US current account deficit and manageable level of capital inflow into East Asia. Given the underpinnings of the situation, it becomes progressively more difficult for the official sector to serve this role effectively as time goes by and the urgency for policy initiatives to deal with the potential fallout from unwinding global imbalances becomes more pressing.

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Bibliographic Info

Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2005-01.

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Length: 27 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:bth:wpaper:2005-01

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  1. Barry Eichengreen, 2005. "Global imbalances and the lessons of Bretton Woods," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
  2. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  3. Disyatat, Piti & Galati, Gabriele, 2007. "The effectiveness of foreign exchange intervention in emerging market countries: Evidence from the Czech koruna," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 383-402, April.
  4. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics.
  5. Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable U.S. Current Account Position Revisited," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376 National Bureau of Economic Research, Inc.
  6. Catherine L. Mann, 2002. "Perspectives on the U.S. Current Account Deficit and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 131-152, Summer.
  7. Eiji Ogawa & Takatoshi Ito, 2000. "On the Desirability of a Regional Basket Currency Arrangement," NBER Working Papers 8002, National Bureau of Economic Research, Inc.
  8. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
  9. Guillaume GAULIER & Francoise LEMOINE & Deniz ´┐ŻNAL-KESENCI, 2004. "CHINA's INTEGRATION IN ASIAN PRODUCTION NETWORKS AND ITS IMPLICATIONS," Discussion papers 04033., Research Institute of Economy, Trade and Industry (RIETI).
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Cited by:
  1. Don Nakornthab & Jittapa Prachuabmoh & Tientip Subhanij & Kessarin Tansuwanarat, 2009. "Challenges in the New Global Macroeconomic and Financial Environment," Working Papers 2009-03, Economic Research Department, Bank of Thailand.

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