Current account deficit, speech delivered at the sandridge lecture, virginia association of economists, richmond, va. Global imbalances and policy wars at the zero lower bound. Chapter four the fundamental structure of the international. In 2010, currency wars between the united states and china resulted in higher food prices. A historical perspective on the importance of rules. Currency wars yesterday and today milan brahmbhatt, otaviano canuto, and swati ghosh an energetic debate on the danger of a global currency war has flared up in recent months, stoked by a renewed move to quantitative easing in the united states, resurgent capital flows to developing countries and strong upward pressure on. For some countries this works just fine, notably the united states and britain, but for the majority of countries. Thus, our model speaks to the debates surrounding currency wars. This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital. Jul 28, 2017 and the continued reliance on demand from debtor countries risks derailing the global recovery, while raising the chances of a disruptive adjustment down the road. Global imbalances and currency wars at the zlb, 2016 meeting papers 1418, society for economic dynamics. Global imbalances and currency wars at the zlb ricardo caballero emmanuel farhi pierreolivier gourinchas suerfpsecepii, paris, september 2016. I ask what should and can be done to dampen global imbalances in the future. Gourinchas, the safe assets shortage conundrum, journal of economic perspectives 31 summer 2017.
Global output endogenously declines, reducing income and therefore net global asset demand, and restoring equilibrium in global asset markets. Ito and mccauley, currency zones rescaling global imbalances. Since then, global imbalances have receded but not disappeared. Federal reserve board the new normal and what it means. This is analogous to the analysis away from the zlb, where the world equilibrium real interest rates and net foreign asset and current account positions are. We characterize global imbalances at the zlb in terms of a metzler diagram in quantities. This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. A previous version of this paper was circulated under the title.
Adjusted for inflation, the price was the lowest since 1973. Pdf the greek crisis and the austerity controversy in europe. Prima facie, the imbalances seem a significant problem. That exchange rates are disconnected from macroeconomics in general and current accounts in particular puzzles economists obstfeld and rogoff 2001. Discuss informally whether there is a unique equilibrium in terms of the home and foreign output gaps. In the not so recent past, such imbalances were addressed through various gold standard systems. Currency wars provides a decent history of monetary policy, and an ample divination of what could come if decent policy is not implemented, and mistakes of the past are not learned from. Caballero, emmanuel farhi, and pierreolivier gourinchas at the conference, international monetary stability. Global imbalances, financial crisis and economic recovery g. Global imbalances and currency wars at the zlb, nber working paper series 21670. Caballero emmanuel farhi pierreolivier gourinchas this draft. We observe the buildup of global imbalances in the early 2000s, until the. Assume now that the world is in a global liquidity trap rw 0. This is a three part series looking at global imbalances.
This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. Both have their origins in economic policies followed in a number. Global imbalances, organized by iie washington 8 february 2007 introduction this paper discusses global imbalances from chinas perspective. By the same token, the indeterminacy implies that if agents coordinate on an appreciated. The debate on trade wars and currency wars has reemerged since the great recession of 2009. Away from the zlb, net safe asset suppliers enjoy a premium. Among the new dangers are threats not just to americas economic wellbeing but to our national security as well.
Global imbalances and currency wars at the zlb ricardo j. Global imbalances and currency wars at the zlb by caballero, farhi, gourinchas author. But while much of the book does indeed focus on competitive devaluation, what currency wars really boils down to is james rickards love affair with the gold standard, and, to a lesser extent, his libertarian values and pride in murica a. Given the nominal rigidities, output is aggregatedemand determined as soon as the global demand for nancial assets exceeds their supply at the zlb. Real interest rates, imbalances and the curse of regional save asset. Liquidity and safety traps, safe assets, global recession, currency wars, trade wars, current account, capital flows, reserve currency, secular stagnation, public debt, fiscal policy, balanced budget global imbalances and currency wars at the zlb. We thank chris ackerman, mark aguiar, manuel amador, cristina arellano, olivier blanchard, luca fornaro, jordi gali, gita gopinath, nobuhiro. Sadly, most americans are completely unaware of the dangers surrounding them and are still just hoping for the best. Recent developments and prospects, speech delivered at the bundesbank lecture, berlin, germany, september 11.
The international adjustment process is starting to work a. While the debate continues, it suggests that, as a matter of prudence, policies to contain global imbalances may still be warranted even if they did not trigger the crisis. An alternative perspective on global imbalances and. First, the dollar is the currency of choice for trade invoicing, international security. The last part of our analysis focuses on safe assets providers. Global imbalances and currency wars at the zlb, working paper 344401, harvard university openscholar.
Cambridge, mass national bureau of economic research, october. Global imbalances reducing income and therefore net global asset demand, and restoring equilibrium in global asset markets. True, if some shock such as a rise in foreign demand were to close up the global imbalances absent any concomitant weaknesses, the damage might well be contained to exchange rates and to the collapse of a few large banks and financial firms along with. Global imbalances and currency wars at the zlb duration. Global imbalances and policy wars at the zero lower bound ricardo j.
Away from the zlb, current account surpluses propagate low interest rates from the origin country to the rest of the world. However, acknowledging that would question mainstream economics celebratory stance toward globalization. Part 2 will look at the future of these imbalances and the likelihood that. Past, present and future, hoover institution, may 5 2016. Global imbalances and policy wars at the zero lower bound, nber working papers 21670, national bureau of economic research, inc. Global imbalances there is compelling evidence about the fact that global imbalances, in terms of large current account deficits and surpluses in different countries, tend to produce bubbles, and. The graph shows current account balances as a fraction of world gdp.
The economists latest solutionssuch as the global currency called the sdrpresent hidden new dangers while resolving none of the current dilemmas. Pdf the main aim of this article is to identify factors influencing the direction of change. At the zlb, current account surpluses propagate recessions. May 06, 2016 global imbalances i gave some comments on global imbalances and currency wars at the zlb, by ricardo j.
Global imbalances and currency wars at the zlb ideasrepec. Global imbalances, financial crisis and economic recovery. Jul 26, 2011 global currentaccount imbalances have been at the forefront of policy debates. Explain what drives global imbalances outside the zlb. Caballero, emmanuel farhi, pierreolivier gourinchas. Global imbalances rigidities designed to highlight the heterogeneous relative demand for and supply of nancial assets across di erent regions of the world. Global imbalances and policy wars at the zero lower bound nber. Global current account imbalances and exchange rate adjustments.
Paper on global imbalances and currency wars at the zlb. Global imbalances and currency wars at the zlb, nber working paper no. It is nonpartisan, open to the examination of diverse points of view, and dedicated to public service. Global imbalances and currency wars at the zlb by caballero. Global imbalances and currency wars at the zlb emmanuel. The making of the next global crisis is ostensibly that. The monetarist position the theory of monetarism, developed by the economist milton friedman, has its main focus on the macroeconomic effect of the supply of money and central banking. John cochrane, hoover institution, stanford university 1. Acute global safe asset scarcity forces the economy into a global safety trap. The exchange rate becomes indeterminate but plays a crucial role in both the distribution and the magnitude of output. Hence, if the current account is persistently showing deficits for certain period it is said to show an. In all these cases, it would be unwise to want to reduce imbalances. Given these risks, addressing external imbalances in a way that is supportive of global growth is a shared responsibility. E0,f3,f4,g01 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with.
Jun 14, 2010 did global imbalances cause the global crisis. Global imbalances and policy wars at the zero lower bound by. They reflect the optimal allocation of capital across time and space. Jan, 2020 currency wars lower export prices and spur economic growth. The aim of the section is to provide some insight on how the different opinions of american economists on global. March 11, 2016 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but.
At the zlb, safe asset scarcity propagates recessions via current account sur pluses. Global imbalances and currency wars at the zlb ens. Global imbalances, saving glut, money, credit, capital flows, current account, interest rates, financial crisis. Pierreolivier gourinchas, university of california, berkeley lead discussant. At present, the us is faced with sizable deficits on both its budget the excess of government spending over revenues and its current account the excess of what americans spend on goods, services and funds transferred abroad. Hence, if the current account is persistently showing deficits for certain period it is said to show an inequilibrium. Global imbalances and currency wars at the zlb san francisco fed. Safe assets, global imbalances and the zlb caballero, ricardo j.
March 11, 2016 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. In theory, when the current account is in balance, it has a zero value. Asset pricing, economic fluctuations and growth, international finance and macroeconomics, monetary economics. University of california at berkeley department of economics. But imbalances can be symptoms of underlying distortions, or be dangerous by themselves.
March 10, 2016 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. The making of the next global crisis paperback august 28, 2012. We characterize global imbalances at the zlb with a metzler diagram in quantities that connects the size of the global recession and net foreign asset positions and current accounts to the recessions that would. Part 2 will look at the future of these imbalances and the likelihood that they will be removed by major changes in trade from asia. This column summarises the variety of explanations of the relationship between imbalances and the crisis.
Global current account imbalances and exchange rate. Part 1 highlights the build up in imbalances and what effect the global financial crisis has had. Global imbalances and currency wars at the zero lower bound. Global imbalances refers to the situation where some countries have more assets than the other countries.
826 563 1296 892 1232 132 1118 989 84 666 506 740 1553 889 1006 1383 381 697 81 791 916 432 644 1329 789 182 1392 860 652 810 1311 1273 1346 394 596