External Adjustment and the Global Crisis

39 Pages Posted: 27 Aug 2011

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Philip R. Lane

Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR); Central Bank of Ireland

Multiple version iconThere are 2 versions of this paper

Date Written: August 2011

Abstract

After widening substantially in the period preceding the global financial crisis, current account imbalances across the world have contracted to a significant extent. This paper analyzes the factors underlying this process of external adjustment. It finds that countries whose pre-crisis current account balances were in excess of what could be explained by economic fundamentals have experienced the largest contractions in their external balance. External adjustment in deficit countries was achieved primarily through demand compression, rather than expenditure switching. Changes in other investment flows were the main channel of financial account adjustment, with official external assistance and ECB liquidity cushioning the exit of private capital flows for some countries.

Suggested Citation

Milesi-Ferretti, Gian Maria and Lane, Philip R., External Adjustment and the Global Crisis (August 2011). IMF Working Papers, Vol. , pp. 1-38, 2011. Available at SSRN: https://ssrn.com/abstract=1917918

Gian Maria Milesi-Ferretti (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Room 9-700
Washington, DC 20431
United States
202-623-7441 (Phone)
202-589-7441 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Philip R. Lane

Trinity College (Dublin) - Department of Economics ( email )

Trinity College
Dublin 2
Ireland
+353 1 608 2259 (Phone)
+353 1 677 2503 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Register to save articles to
your library

Register

Paper statistics

Downloads
135
Abstract Views
884
rank
180,075
PlumX Metrics