Table of contents Table of contents Close section Volume Get Code Buy. We assess the macroeconomic impact on Europe of global current account adjustment under alternative scenarios, emphasizing both trade and financial channels. Finally, we consider heterogeneous exposure across individual European economies to external adjustment shocks.
This book is the result of a workshop on the effects of globalization on Asian and European countries, organized by Marc Uzan and the Austrian Ministry of. [DOWNLOAD] The Macroeconomics of Global Imbalances: European and Asian Perspectives. (Routledge Studies in the Modern World Economy) by Marc Uzan.
Show Summary Details. You are not logged in and do not have access to this content. Please login or, to subscribe to IMF eLibrary, please click here. Although policymakers in the emerging markets clearly face important challenges, such concerns should be put into perspective.
First, these capital flows have been driven by many factors, including expectations of more-rapid growth and thus higher investment returns in the emerging market economies than in the advanced economies. Indeed, recent data suggest that the aggregate flows to emerging markets are not out of line with longer-term trends.
Second, as I noted earlier, emerging market economies have a strong interest in a continued economic recovery in the advanced economies, which accommodative monetary policies in the advanced economies are intended to promote. Finally, it should be borne in mind that spillovers can go both ways. For example, resurgent demand in the emerging markets has contributed significantly to the sharp recent run-up in global commodity prices.
More generally, the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable. Such imbalances include those not only between emerging markets and advanced economies, but also among the emerging market economies themselves, as those countries that have allowed their exchange rates to be determined primarily by market forces have seen their competitiveness erode relative to countries that have intervened more aggressively in foreign exchange markets. Our collective challenge is to reshape the international monetary system to foster strong, sustainable growth and improve economic outcomes for all nations.
Working together, we need to clarify and strengthen the rules of the game, with an eye toward creating an international system that more effectively supports the simultaneous pursuit of internal and external balance. To achieve a more balanced international system over time, countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports.
At the same time, countries with large, persistent trade deficits must find ways to increase national saving, including putting fiscal policies on a more sustainable trajectory. In addition, to bolster our individual and collective ability to manage and productively invest capital inflows, we must continue to increase the efficiency, transparency, and resiliency of our national financial systems and to strengthen financial regulation and oversight. None of these changes will be easy or immediate. To help us achieve them, we must continue to strengthen our mechanisms for international cooperation, including in the Basel Committee, the Financial Stability Board, and the Group of Twenty Mutual Assessment Process, and work together to enhance surveillance by the International Monetary Fund.
I am pleased that our French hosts are focusing the work of the Group of Twenty on these challenging, but crucially important, issues. I am hopeful that we will make substantive progress on them in the year ahead--an outcome that will strengthen the global economy and benefit all countries. See Ben S. Return to text. See, for example, Ricardo J. For a discussion, see Ben S. For a discussion of the international implications of the two-speed recovery, see Ben S.
Search Submit Search Button. These economies increased their foreign exchange reserves to respond to future balance of payment. In some advanced countries, such as Germany,Japan and New Zealand, the ageing issue has been a very important factor increasing the amount of the savings.
So far, we have explained why some countries have accumulated many savings, but not why they are held abroad besides the precautionary savings explanation. One reason, is that the financial development has not been followed at the same pace as the financial openness. This can be seen in a very small markets to generate safe assets where to store value from one period to the next.
For this reason, many countries have decided to invest those assets abroad, in the more financially developed countries, such as the United States and the United Kingdom, in the form of Sovereign Wealth Funds , portfolio investments and foreign reserves, indicating the existence of shortages in safe assets as well.
Also, some coincidental factors amplified the extent of the imbalances. The decreasing output volatility in advanced economies i. Great Moderation , led to less savings and a decrease in risk aversion, that was reflected in deepening current account deficits. Global imbalances helped fuel the financial crisis, even though it did not cause it.
This reduction in interest rate, in addition to other policy measures adopted by central banks, encouraged risk taking and underestimation of risks, on the verge of financial innovation , that might as well had been boosted by this financial environment. It also helped in the increase of leverage in advanced economies, and the formation of the housing market bubble in many of them, through the relaxed credit conditions.
Also the increase in the financial linkages, lead to a rapid contagion across economies. Even though many of the policies adopted or discussed since the beginning of the Great Recession, have centred on the sectors of Finance, Housing and Public Debt, among other issues, the presence of Global Imbalances still remains as a factor, that although reduced, points out the need of reforms of the international monetary and financial system to correct the imbalances, and hence, the distortions and market imperfections that gave them origin in first place.
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The World Economy. Retrieved 17 February Global imbalances: is the world economy really at risk?
The Economic Journal. Journal of Political Economy.