A Framework for Assessing Global Imbalances

35 Pages Posted: 7 Sep 2010

See all articles by Thierry Bracke

Thierry Bracke

European Central Bank (ECB)

Matthieu Bussière

Banque de France

Michael Fidora

European Central Bank (ECB)

Roland Straub

European Central Bank (ECB)

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Abstract

Since the mid-1990s and prior to the financial crisis external balances of systemically important economies widened significantly. This paper takes a long-run perspective and reviews the main determinants of widening global imbalances. To this aim, we first provide a set of newly derived statistical measures: while large external imbalances are not new in economic history, their persistence, their concentration on one economy (the United States) and the specific role of emerging market economies make the present episode rather unique. Second, we argue that the observed pattern of imbalances can be mostly understood as a result of various structural changes in the global economy, which have allowed a widening trend of external positions. Three main features set the most recent period apart from past episodes of growing external imbalances: (i) the emergence of new players, in particular emerging market economies such as China and India, which are quickly catching up with the advanced economies; (ii) an unprecedented wave of financial globalisation, with more integrated global financial markets and increasing opportunities for international portfolio diversification, also characterised by considerable asymmetries in the level of market completeness across countries; and (iii) the favourable global macroeconomic and financial environment, with record high global growth rates in recent years, low financial market volatility and easy global financing conditions over a long period of time, running until the outburst of the financial crisis during the summer of 2007. These structural changes that have been supplemented by cyclical or policy-induced factors ultimately facilitated the sudden, disorderly unwinding of global imbalances that is reflected in the current financial crisis.

Suggested Citation

Bracke, Thierry and Bussière, Matthieu and Fidora, Michael and Straub, Roland, A Framework for Assessing Global Imbalances. World Economy, Vol. 33, Issue 9, pp. 1140-1174, September 2010. Available at SSRN: https://ssrn.com/abstract=1672934 or http://dx.doi.org/10.1111/j.1467-9701.2010.01266.x

Thierry Bracke

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Matthieu Bussière

Banque de France

Paris
France

Michael Fidora

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 5713 (Phone)

Roland Straub

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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