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Global Imbalances, Bretton Woods II, and Euroland's Role in All This

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  • Jorg Bibow
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    Abstract

    Approaching the issue of mounting global imbalances from the perspective of the "Bretton Woods II hypothesis," this paper argues that the popular preoccupation with China's supposed export-led development strategy is misplaced. It also suggests, similar to Japan's depression, subdued growth in Euroland for most of the time since the Maastricht Treaty has been of first-order importance in these developments. Germany is identified as being at the heart of the European trouble. Globally, there is an ongoing clash between two approches to macroeconomic policy making: a highly dogmatic German approach, and a very pragmatic Anglo-Saxon one. The low levels of interest at which global demand imbalances have been smoothed out financially reflect deficient global demand in an environment of vast supply-side opportunities. After contributing greatly to the build-up of imbalances, Euroland is unlikely to play any constructive part in their unwinding. Hampered by an exchange-rate policy vacuum, a small-country mindset, and soaring intra-area imbalances, Euroland is also illpositioned to cope with fading external growth stimuli.

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    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_486.

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    Date of creation: Dec 2006
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    Handle: RePEc:lev:wrkpap:wp_486

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    1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers 5220, C.E.P.R. Discussion Papers.
    2. Dimitri B. Papadimitriou & Gennaro Zezza & Greg Hannsgen, 2006. "Can Global Imbalances Continue?: Policies for the U.S. Economy," Economics Strategic Analysis Archive sa_nov_06, Levy Economics Institute.
    3. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York.
    4. 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.
    5. Jorg Bibow, 2005. "Bad for Euroland, Worse for Germany-The ECB's Record," Macroeconomics 0511018, EconWPA.
    6. Jorg Bibow, 2005. "Bad for Euroland, Worse for Germany: The ECB's Record," Economics Working Paper Archive wp_429, Levy Economics Institute.
    7. Hans-Werner Sinn, 2005. "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(06), pages 03-42, 03.
    8. Dimitri B. Papadimitriou & Edward Chilcote & Gennaro Zezza, 2006. "Are Housing Prices, Household Debt, and Growth Sustainable?," Economics Strategic Analysis Archive sa_jan_06, Levy Economics Institute.
    9. Morris Goldstein & Nicholas R. Lardy, 2005. "China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity," Working Paper Series WP05-2, Peterson Institute for International Economics.
    10. Rodrik, Dani, 2006. "The Social Cost of Foreign Exchange Reserves," CEPR Discussion Papers 5483, C.E.P.R. Discussion Papers.
    11. Steven Kamin, 2005. "The revived Bretton Woods system: does it explain developments in non-China developing Asia?," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    12. Alan Greenspan & James Kennedy, 2005. "Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences," Finance and Economics Discussion Series 2005-41, Board of Governors of the Federal Reserve System (U.S.).
    13. Alan Ahearne & Jürgen von Hagen, 2005. "Global current account imbalances: how to manage the risk for Europe," Policy Briefs 231, Bruegel.
    14. Felipe, Jesus & Lim, Joseph Anthony, 2005. "Export or Domestic-led Growth in Asia?," Asian Development Review, Asian Development Bank, vol. 22(2), pages 35-75.
    15. 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).
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