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Global Imbalances and Financial Crisis: Financial Globalization as a Common Cause

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  • Yan Liang

Abstract

Global imbalances and global financial instability are tightly connected and can be traced to a common cause, that is, financial globalization within the current monetary and financial system. The paper argues that financial globalization contributes to global imbalances by impeding real exchange adjustments, inducing export-led growth, and sustaining widening deficits in the financial core country. Meanwhile, financial globalization leads to increasing global financial instability. Without a true international clearing union, the United States is charged with providing global liquidity and managing financial risks; but the failure of the United States to provide these essential banking services ultimately brought about the 2008 global financial crisis.

Suggested Citation

  • Yan Liang, 2012. "Global Imbalances and Financial Crisis: Financial Globalization as a Common Cause," Journal of Economic Issues, Taylor & Francis Journals, vol. 46(2), pages 353-362.
    • Handle: RePEc:mes:jeciss:v:46:y:2012:i:2:p:353-362
    DOI: 10.2753/JEI0021-3624460210
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    Cited by:

    1. Christian E. Weller & Ghazal Zulfiqar, 2013. "Financial Market Diversity and Macroeconomic Stability," Working Papers wp332, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. David Cayla, 2013. "European Debt Crisis: How a Public Debt Restructuring Can Solve a Private Debt Issue," Journal of Economic Issues, Taylor & Francis Journals, vol. 47(2), pages 427-436.

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