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Global imbalances before and after the global crisis

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  • Serven, Luis
  • Nguyen, Ha

Abstract

This paper surveys the academic and policy debate on the roots of global imbalances, their role in the inception of the global crisis, and their prospects in its aftermath. The conventional view holds that global imbalances result primarily from unsustainably high demand for goods in the United States and other rich countries, and that their impending correction must involve major United States trade adjustment and dollar depreciation -- although recent literature argues that their extent may be dampened by financial adjustment effects. In contrast, an alternative view portrays global imbalances as the equilibrium result of asymmetries in world asset demand and supply. Absent changes in the deep determinants of these, global imbalances can persist. International capital flow patterns before and during the crisis lend support to the equilibrium view. The paper also examines different hypotheses proposed in the literature on the role of global imbalances in the generation and propagation of the financial crisis. On the whole, the evidence suggests that global imbalances were not among the major causes of the crisis. Lastly, the paper assesses alternative scenarios about the future of global imbalances, considering in particular their potential consequences for developing countries, and the policy measures that these might adopt to enhance their growth prospects in a changing global equilibrium.

Suggested Citation

  • Serven, Luis & Nguyen, Ha, 2010. "Global imbalances before and after the global crisis," Policy Research Working Paper Series 5354, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5354
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    References listed on IDEAS

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    1. David Backus & Espen Henriksen & Frederic Lambert & Chris Telmer, 2005. "Current Account Fact and Fiction," 2005 Meeting Papers 115, Society for Economic Dynamics.
    2. Olivier Jeanne & Romain Rancière, 2011. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," Economic Journal, Royal Economic Society, vol. 121(555), pages 905-930, September.
    3. Plamen K Iossifov & Martin Cihak & Amar Shanghavi, 2008. "Interest Rate Elasticity of Residential Housing Prices," IMF Working Papers 08/247, International Monetary Fund.
    4. Ricardo J. Caballero, 2010. "The "Other" Imbalance and the Financial Crisis," NBER Working Papers 15636, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Yap, Josef T., 2011. "The Political Economy of Reducing the US Dollar’s Role as a Global Reserve Currency," ADBI Working Papers 302, Asian Development Bank Institute.
    2. Jan Priewe, 2011. "Die Weltwirtschaft im Ungleichgewicht Globale Zahlungsbilanzungleichgewichte - Ursachen, Gefahren, Korrekturen," Competence Centre on Money, Trade, Finance and Development 1103, Hochschule fuer Technik und Wirtschaft, Berlin.
    3. Alberto Martin & Jaume Ventura, 2015. "Financial Reforms and Capital Flows: Insights from General Equilibrium," Central Banking, Analysis, and Economic Policies Book Series,in: Ricardo J. Caballero & Klaus Schmidt-Hebbel (ed.), Economic Policies in Emerging-Market Economies Festschrift in Honor of Vittorio Corbo, edition 1, volume 21, chapter 7, pages 109-137 Central Bank of Chile.
    4. Cosimo Pancaro & Christian Saborowski, 2016. "Current Account Reversals in Industrial Countries: does the Exchange Rate Regime Matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 107-130, April.
    5. Jamel Saadaoui, 2011. "Global Imbalances and Capital Account Openness: an Empirical Analysis," Working Papers halshs-00641456, HAL.
    6. Yap, Josef T., 2011. "The Political Economy of Reducing the United States Dollar`s Role as a Global Reserve Currency," Discussion Papers DP 2011-13, Philippine Institute for Development Studies.
    7. Saadaoui, Jamel, 2011. "Global imbalances and capital account openness: an empirical analysis," MPRA Paper 35453, University Library of Munich, Germany.
    8. Borce Trenovski & Biljana Tashevska & Suzana Makreshanska, 2015. "The Global Economic Crisis - What Should Not Be Forgotten," Journal Articles, Center For Economic Analyses, pages 99-112, June.
    9. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
      [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
      ," MPRA Paper 51332, University Library of Munich, Germany.
    10. Shahid Yusuf & Kaoru Nabeshima, 2010. "Changing the Industrial Geography in Asia : The Impact of China and India," World Bank Publications, The World Bank, number 13544, April.
    11. Clifton, Judith & Díaz-Fuentes, Daniel, 2011. "La Nueva Política Económica de la OCDE ante el cambio en la Economía Mundial
      [The New Political Economy of the OECD in a context of Shifting World Wealth]
      ," MPRA Paper 33010, University Library of Munich, Germany.
    12. Kim, C., 2011. "Global balance and financial stability: twin objectives toward a resilient global economic system," Financial Stability Review, Banque de France, issue 15, pages 61-72, February.

    More about this item

    Keywords

    Currencies and Exchange Rates; Debt Markets; Emerging Markets; Economic Theory&Research; Investment and Investment Climate;

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