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Global imbalances and financial stability

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  • Noyer, C.

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.

Suggested Citation

  • Noyer, C., 2011. "Global imbalances and financial stability," Financial Stability Review, Banque de France, issue 15, pages 107-112, February.
  • Handle: RePEc:bfr:fisrev:2011:15:13
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/financial-stability-review-15_2011-02.pdf
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    References listed on IDEAS

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    1. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    2. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    3. Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-540, March.
    4. Jiandong Ju & Shang-Jin Wei, 2010. "Domestic Institutions and the Bypass Effect of Financial Globalization," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 173-204, November.
    5. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," American Economic Review, American Economic Association, vol. 99(2), pages 584-588, May.
    6. Romain Ranciere & Olivier D 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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