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Global imbalances and the financial crisis

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  • Karl Whelan

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.

Suggested Citation

  • Karl Whelan, 2010. "Global imbalances and the financial crisis," Working Papers 201013, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201013
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    File URL: http://hdl.handle.net/10197/2646
    File Function: First version, 2010
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    Cited by:

    1. 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.
    2. repec:bla:ecopol:v:29:y:2017:i:3:p:179-208 is not listed on IDEAS
    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.

    More about this item

    Keywords

    Global Financial Crisis; 2008-2009; Regional economic disparities; International economic relations;

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