External Imbalances and Financial Crises

19 Pages Posted: 20 Jan 2014  

Alan M. Taylor

University of California, Davis - Department of Economics; University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2013

Abstract

Consider two views of the global financial crisis. One view looks across the border: it blames external imbalances, the unprecedented current account deficits and surpluses in recent years. Another view looks within the border: it faults domestic financial systems where risks originated in excessive credit booms. We can use the lens of macroeconomic and financial history to confront these dueling hypotheses with evidence. The credit boom explanation is the most plausible predictor of crises since the late nineteenth century; global imbalances have only a weak correlation with financial distress compared to indicators drawn from the financial system itself.

Keywords: Financial crisis, Current account, Credit expansion, Capital flows, Business cycles, Financial crises, financial openness, capital controls, external imbalances, credit booms, recessions, banking crisis, banking crises, capital mobility, global financial crisis, financial distress, bank panics, public debts, economic crisis, reserve requirements, current account deficits, crisis problem, currency risks, private debt, current accounts, asset bubbles, rating agencies, government deficits, reserve accumulation, deposit insurance, fiscal crisis, financial integration

JEL Classification: E30, E40, E50, F4, F3, N10

Suggested Citation

Taylor, Alan M., External Imbalances and Financial Crises (December 2013). IMF Working Paper No. 13/260. Available at SSRN: https://ssrn.com/abstract=2381856

Alan M. Taylor (Contact Author)

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