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Global Imbalances and the Financial Crisis

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Author Info

  • Karl Whelan

    (University College Dublin)

Abstract

Did global imbalances cause the financial crisis? A number of influential figures have argued that inflows of foreign capital into the US due to the current account deficit helped to trigger the crisis. This paper argues that the evidence for this position is weak. The capital inflows into the US associated with the current account deficit were also not the key factor driving foreign purchases of US toxic assets. The so-called global savings glut was not as significant a pattern as is often presented. Macroeconomic policies that reduced global imbalances could have been adopted but these would probably not have prevented the crisis. Global policy efforts to prevent a recurrence of the financial crisis need to focus on improved banking regulation. Reducing global imbalances should be of secondary importance.

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File URL: http://www.ucd.ie/t4cms/wp10_13.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 201013.

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Length: 21 pages
Date of creation: 15 Apr 2010
Date of revision:
Handle: RePEc:ucn:wpaper:201013

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Cited by:
  1. Lionel Artige & Laurent Cavenaile, 2011. "A calibrated Growth Model of Global Imbalances," CREPP Working Papers 1106, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  2. Abdala Rioja, Yamile E, 2011. "All Things Considered: The Interaction of the Reasons for the Financial Crisis," MPRA Paper 33408, University Library of Munich, Germany.
  3. Pasquale Tridico, 2011. "Varieties of capitalism and responses to the Financial Crisis: the European social Model versus the US Model," Departmental Working Papers of Economics - University 'Roma Tre' 0129, Department of Economics - University Roma Tre.
  4. John Whalley & Manmohan Agarwal & Jing Wang & Sean Walsh & Chen Yan, 2011. "Linking External Sector Imbalances and Changing Financial Instability before the 2008 Financial Crisis," NBER Working Papers 17645, National Bureau of Economic Research, Inc.

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