IDEAS home Printed from https://ideas.repec.org/p/ags/umciwp/109244.html
   My bibliography  Save this paper

Macroeconomic Imbalances in the World Economy

Author

Listed:
  • Roe, Terry L.
  • Shane, Mathew
  • Heerman, Kari

Abstract

This paper explores the emergence of large current account imbalances in a few large countries, the factors behind the emergence, the role of those imbalances in the financial crisis of 2008-09, and the implications of achieving global balance. Imbalances reflect a country’s net savings and suggest that growth in GDP of a surplus country is partly dependent upon growth in external demand of deficit countries. Although a country can incur a surplus or deficit for ever, we suggest that the increasing surpluses of relatively large and rapidly growing countries is likely to be destabilizing to global growth in the long-run. The adjustment will likely require a surplus country, such as China, to rely more on domestic demand for growth while a deficit country, such as the U.S., may need to rely more on external demand for growth. We suggest the Eurozone imbalances are not directly linked to U.S. imbalances. There are a variety of potential causes of global imbalances including excess savings in surplus countries, the twin deficit hypothesis, the export-led growth hypothesis, and the possible miss-measurement of the U.S. current account due to repatriation of profits from U.S. owned foreign affiliates. However, whatever the combination of causes of the growing imbalances, adjustments need to be made to return to long-terms sustainable growth.

Suggested Citation

  • Roe, Terry L. & Shane, Mathew & Heerman, Kari, 2011. "Macroeconomic Imbalances in the World Economy," Working Papers 109244, University of Minnesota, Center for International Food and Agricultural Policy.
  • Handle: RePEc:ags:umciwp:109244
    as

    Download full text from publisher

    File URL: http://purl.umn.edu/109244
    Download Restriction: no

    References listed on IDEAS

    as
    1. Mayer-Foulkes David A, 2010. "Long-Term Fundamentals of the 2008 Economic Crisis," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-25, January.
    2. David Backus & Espen Henriksen & Frederic Lambert & Chris Telmer, 2005. "Current Account Fact and Fiction," 2005 Meeting Papers 115, Society for Economic Dynamics.
    3. Bems, Rudolfs & Dedola, Luca & Smets, Frank, 2007. "US imbalances: The role of technology and policy," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 523-545, June.
    4. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, vol. 98(1), pages 358-393, March.
    5. Ellen R. McGrattan & Edward C. Prescott, 2010. "Technology Capital and the US Current Account," American Economic Review, American Economic Association, vol. 100(4), pages 1493-1522, September.
    6. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    7. Robert E. Lipsey, 2009. "Measuring International Trade in Services," NBER Chapters,in: International Trade in Services and Intangibles in the Era of Globalization, pages 27-70 National Bureau of Economic Research, Inc.
    8. Ricardo J. Caballero & Arvind Krishnamurthy, 2009. "Global Imbalances and Financial Fragility," American Economic Review, American Economic Association, vol. 99(2), pages 584-588, May.
    9. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves; Precautionary vs. Mercantilist Views, Theory and Evidence," IMF Working Papers 05/198, International Monetary Fund.
    10. Judith A. Giles, & Cara L. Williams, 1999. "Export-led Growth: A Survey of the Empirical Literature and Some Noncausality Results," Econometrics Working Papers 9901, Department of Economics, University of Victoria.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    International Relations/Trade;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:umciwp:109244. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/ciumnus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.