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Global Imbalances and the Asian Economies: Implications for Regional Cooperation

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  • Eichengreen, Barry

    (University of California, Berkeley)

Abstract

This paper asks how Asia should prepare for the disorderly correction of global imbalances. It recommends tightening monetary policy and allowing Asian currencies to appreciate as a way of achieving a better balance between internal and external demand. Leaving the overall level of demand unchanged requires that this monetary tightening be complemented by some relaxation of fiscal policy. But because the scope for fiscal support of domestic demand differs across countries, so too does the optimal degree of monetary tightening and exchange rate adjustment. This observation makes clear that an attempt to suppress intra-Asian exchange rate movements would be counterproductive in this context. Other policy measures that produce effects over longer horizons that can further contribute to the rotation of demand away from exports to the US include the development of Asian financial markets and the completion of an Asian free trade area. These policy adjustments will occur most easily if they are coordinated within Asia.

Suggested Citation

  • Eichengreen, Barry, 2006. "Global Imbalances and the Asian Economies: Implications for Regional Cooperation," Working Papers on Regional Economic Integration 4, Asian Development Bank.
    • Handle: RePEc:ris:adbrei:0004
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    Cited by:

    1. Kinkyo, Takuji, 2007. "Explaining Korea's Lower Investment Levels After the Crisis," World Development, Elsevier, vol. 35(7), pages 1120-1133, July.
    2. Steinherr, Alfred & Cisotta, Alessandro & Klar, Erik & Sehovic, Kenan, 2006. "Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia," Working Papers on Regional Economic Integration 6, Asian Development Bank.
    3. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 207-232, December.

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    More about this item

    Keywords

    Asia economies; global imbalances; international economics; economic integration; regional cooperation;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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