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Financial Flows, Financial Crises, and Global Imbalances

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  • Obstfeld, Maurice

Abstract

In this lecture I document the proliferation of gross international asset and liability positions and discuss some of the 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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8611.

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Date of creation: Oct 2011
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Handle: RePEc:cpr:ceprdp:8611

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Keywords: current account balance; financial instability; global imbalances; international asset positions; international financial flows;

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References

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  1. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International financial adjustment," Proceedings, Federal Reserve Bank of San Francisco.
  2. Reinhart, Carmen & Reinhart, Vincent, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," CEPR Discussion Papers 6996, C.E.P.R. Discussion Papers.
  3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
  4. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
  5. Reuven Glick & Mark M. Spiegel, 2010. "Asia and the global financial crisis: conference summary," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar15.
  6. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: challenges for macroeconomics and policy," Discussion Papers 27, Monetary Policy Committee Unit, Bank of England.
  7. Soyoung Kim, 2002. "Nominal Revaluation of Cross-Border Assets, Terms-of-Trade Changes, International Portfolio Diversification, and International Risk Sharing," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 327-344, October.
  8. Pierre-Olivier Gourinchas & Maurice Obstfeld, 2011. "Stories of the Twentieth Century for the Twenty-First," NBER Working Papers 17252, National Bureau of Economic Research, Inc.
  9. Philip R. Lane & G Milesi-Feretti, 2004. "Financial Globalization and Exchange Rates," CEP Discussion Papers dp0662, Centre for Economic Performance, LSE.
  10. Maurice Obstfeld, 2004. "External Adjustment," NBER Working Papers 10843, National Bureau of Economic Research, Inc.
  11. �scar Jord� & Moritz Schularick & Alan M Taylor, 2011. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," IMF Economic Review, Palgrave Macmillan, vol. 59(2), pages 340-378, June.
  12. Ostry, Jonathan D., 2012. "Managing Capital Flows: What Tools to Use?," Asian Development Review, Asian Development Bank, vol. 29(1), pages 83-89.
  13. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Jan).
  14. Viral V Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? Asset-Backed Commercial Paper during the Financial Crisis of 2007–09," IMF Economic Review, Palgrave Macmillan, vol. 58(1), pages 37-73, August.
  15. Giavazzi, Francesco & Spaventa, Luigi, 2010. "Why the current account may matter in a monetary union: Lessons from the financial crisis in the Euro area," CEPR Discussion Papers 8008, C.E.P.R. Discussion Papers.
  16. Robert E. Lipsey, 2008. "Measuring the Location of Production in a World of Intangible Productive Assets, FDI, and Intrafirm Trade," NBER Working Papers 14121, National Bureau of Economic Research, Inc.
  17. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
  18. Viral V. Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial Paper During the Financial Crisis of 2007-09," NBER Working Papers 16079, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2011. "Gross capital flows : dynamics and crises," Policy Research Working Paper Series 5768, The World Bank.
  2. Francisco Ceballos & Tatiana Didier & Sergio L. Schmukler, 2012. "Financial Globalization in Emerging Countries : Diversification vs. Offshoring," Macroeconomics Working Papers 23350, East Asian Bureau of Economic Research.
  3. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
  4. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises Explanations, Types, and Implications," IMF Working Papers 13/28, International Monetary Fund.
  5. Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
  6. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2013. "The Effects of the Saving and Banking Glut on the U.S. Economy," Working Paper Series WP-2013-17, Federal Reserve Bank of Chicago, revised 29 Nov 2013.
  7. Rafael Domenech & Monica Correa-Lopez, 2012. "The internationalisation of Spanish firms," Working Papers 1230, BBVA Bank, Economic Research Department.
  8. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.
  9. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.
  10. Joshua Aizenman & Hiro Ito, 2013. "Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries," NBER Working Papers 19448, National Bureau of Economic Research, Inc.

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