Discussion of global imbalances and currency wars at the zlb powerpoint presentation arvind krishnamurthy. Facets of eurocrisis, austerity policies and global imbalances after the outbreak of the 2008 global economic crisis, the european project has entered its second, less optimistic phase. Caballero, emmanuel farhi, pierreolivier gourinchas. Then, as now, it has been argued, the united states ran balance of payment deficits, provided international reserves to. Gourinchas october 29, 2015 on august 11, 2015, the people bank of china devalued the yuan. Bernanke says a global savings glut, caused by people and governments overseas saving too much, has driven unemployment up in the united states, and driven wages, g. Currency wars and the emerging market countries brookings. Del negro, marco, marc giannoni, matthew cocci, sara shahanaghi, and micah smith 2015. Global perspective, at the zlb ea surplus clearly not a solution in a global zlb environment surplus countries hold world output down caballero et al 2015. Financial integration, financial development, and global. It has meant that global imbalances have declined modestly again. Discussion of global imbalances and currency wars at the zlb. Revised february 2020 a previous version of this paper was circulated under the title. Global imbalances and currency wars at the zlb, eggertsson et al 2016 a contagious malady.
Global imbalances the latest slowdown in global trade is broadly consistent with the slowdown in global gdp. Brown1 departmentofpublicadministrationandinternationalaffairs. Global macroeconomic imbalances and the financial crisis. 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. Global imbalances rigidities designed to highlight the heterogeneous relative demand for and supply of nancial assets across di erent regions of the world.
E0,f3,f4,g01 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with. This is the second draft of a chapter to be published in after the great recession. Asset pricing, economic fluctuations and growth, international finance and macroeconomics, monetary economics. The international adjustment process is starting to work a. Federal reserve board what happened to the great divergence. Caballero emmanuel farhi pierreolivier gourinchas this draft. However, acknowledging that would question mainstream economics celebratory stance toward globalization. In this environment, a large country with a severe autarky liquidity trap recession can pull the world economy into a global liquidity trap recession. Away from the zlb, safe asset scarcity propagates low equilibrium real interest rates via current account surpluses. International finance 2019 3 global imbalances, valuation effect and dark matter. March 10, 2016 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but. Economic policies should not ignore external imbalances and just assume that they will sort themselves out. Pdf global imbalances, the international crisis and the. Away from the zlb, net safe asset suppliers enjoy a premium.
Global dimensions of us monetary policy international journal of. At the zlb, safe asset scarcity propagates recessions via current account sur pluses. Jan 22, 2010 in global imbalances and the lessons of bretton woods, barry eichengreen takes issue with the argument that todays international financial system is largely analogous to the bretton woods system of the period 1958 to 1973. Global imbalances and currency wars at the zlb emmanuel. In the recent period of global imbalances since 1998, this view has been brought. 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. Powerful beggarthyneighbor e ects i metzler diagram in quantities links global imbalances. Global imbalances and currency wars at the zlb ideasrepec. While the empirical view holds that the system will remain unipolar and dollarbased, the opposing view uses history to contend that it may potenially evolve away from the dollar. Her recent publications include real capital market integration in east asia and implications for the expansion of investment the journal of the korean economy, in korean, coauthored with yonghyup oh, 2006.
The adb economics working paper series is a quickdisseminating, informal publication whose titles could subsequently be revised for publication as articles in professional journals or chapters in books. Global imbalances and the lessons of bretton woods cairoli. Global output endogenously declines, reducing income and therefore net global asset demand, and restoring equilibrium in global asset markets. Calvo and alejandro izquierdo and rudy lookung 2012. These sorts of beggarthyneighbor policies can lead to currency wars when countries are at the zlb. Although modest in size, the devaluation signaled a turning point in chinas willingness to let the yuan appreciate, or remain stable, against the u. The missing dark matter in the wealth of nations and its implications for global imbalances, economic policy 22. Gourinchas 2015, global imbalances and currency wars at the zlb, nber working paper no. How economic imbalances lead to imbalances in trade we saw in part one of this series how an economy is balanced if its consumption and investment are the same size as its production. Jun 14, 2010 did global imbalances cause the global crisis. The imfs 2017 external sector report shows that global current account imbalances were broadly unchanged in 2016. Global imbalances and currency wars at the zero lower bound. It also focuses on the asymmetries of the dollar standard exchange rate regime.
In our view, both originated primarily in economic policies followed in a number of. Determinants of global imbalances 2 besides these commonly cited factors, the chapter reveals that soft factors related to social policies and income inequalities have also played a prominent role in these developments and might explain why the current account imbalances have proven to be much more persistent than in the past. Whether imbalances stay narrow or widen again in the medium term depends on the extent to. Global imbalances and policy wars at the zero lower bound ricardo j. How economic imbalances lead to imbalances in trade. Global imbalances, financial crisis and economic recovery. Rather, the term refers to the relatively large magnitude in absolutevalueofthosecurrentaccountbalances. March 11, 2016 abstract this paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but. Thus, our model speaks to the debates surrounding currency wars. Global imbalances and currency wars at the zlb, nber working paper series 21670. Global imbalances and currency wars at the zlb, draft paper, october 22.
The steady decline in interest rates was a natural outcome of this process. Global imbalances and currency wars at the zlb harvard university. As a cure to the vicious cycle of austerityrecessionindebtedness global imbalances, many prominent economists propose a shift in european economic. The currency and financial crisis in 1997 was triggered by fundamental imbalances. The series is maintained by the economics and research department. Apr 11, 2018 the imbalances, distortions and inequalities are manifesting in trade disputes and conflicts, manifestations made inevitable by central bankdriven financialization and perverse incentives to maximize shortterm profits at the expense of the citizenry, the nation and the productive economy. A sudden reversal of these inflows would have negative effects on the economies in question. We propose a simple model of the international monetary system. Global imbalances and currency wars at the zlb ricardo caballero emmanuel farhi pierreolivier gourinchas suerfpsecepii, paris, september 2016. Distinguishing between two different schools of thought that are named after two different universities, harvard and berkeley, the article looks at the evolution, past and future, of the international monetary system.
Away from the zlb, current account surpluses propagate low interest rates from the origin country to the rest of the world. Assume now that the world is in a global liquidity trap rw 0. Global imbalances and currency wars at the zlb joint with r. Prima facie, the imbalances seem a significant problem.
Likewise, larry summers recently argued that the best way to 2 see caballero, r. A conventional view of global imbalances considers them to primarily result from macroeconomic. Global imbalances and currency wars at the zlb ricardo j. 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. Thispattern of increasing imbalances is illustrated in figure 5. Global imbalances and currency wars at the zlb emmanuel farhi. Once the crisis started, herding and market overreaction caused the plunge of exchange rates, economic activity and asset prices to be more severe than the one which was warranted by the weak economic conditions. I model of global and local, permanent or persistent liquidity traps secular stagnation i explores how traps in one country propagate to other countries i in the benchmark model, trap is global or not at all i the relative size of traps is controlled by the exchange rate. Pdf the greek crisis and the austerity controversy in. Disintegration of the welfare state john milios, spyros lapatsioras and dimitris p. Between dec 2008 and 20, the us has been at this zero lower bound of monetary policy. Dinesh paliwal the global currency wars are likely.
Global imbalances and currency wars at the zlb, working paper 344401, harvard university openscholar. Dinesh paliwal quotes from the global currency wars are likely here to stay due to the fine line between legitimate monetary balancing and sometimes selfserving trade manipulation. Aug 19, 2010 global imbalances and the impact on the u. University of california at berkeley department of economics. Willen 2004 studied the qualitative predictions of a twoperiod endowmenteconomy model with exponential utility and normali. Countries may hike tariffs to divert global demand away from foreign goods and toward domestic goods. Both have their origins in economic policies followed in a number. Global imbalances and the development of capital flows among asian countries by naoyuki yoshino during the current global crisis, capital inflows into asian countries have increased, leading to excess liquidity and the risk of potential asset bubbles. By the same token, the indeterminacy implies that if agents coordinate on an appreciated. The papers are on subjects of topical interest and are technical in character. Provided for noncommercial research and educational use. Global imbalances mutate at the zero lower bound zlb from benign to malign. This column summarises the variety of explanations of the relationship between imbalances and the crisis. 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.
Bis working papers are written by members of the monetary and economic department of the bank for international settlements, and from time to time by other economists, and are published by the bank. Nov 05, 2015 currency wars at the zlb november 5, 2015 8. Global imbalances and currency wars at the zlb duration. Selfinsurance against sudden stop, nber working papers no.
The paper investigates the links between international global imbalances and the recent international financial crisis. This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital. Global imbalances and currency wars at the zlb, nber working paper no. Apr 22, 2020 interest rates stayed at 0% as unemployment rose from 7. Central banks creating financial imbalances and distortions. International macroeconomics 20172018 academic year master of research in economics, finance and management. Pierreolivier gourinchas, university of california, berkeley lead discussant. This paper surveys the academic and policy debate on the origins of global imbalances, their prospects after the global crisis, and their policy implications. Global imbalances and policy wars at the zero lower bound. In caballero, farhi and gourinchas 2008a,b we modeled global imbalances as the result of global differences in the capacity to produce assets, and the decline in potential growth in the developed world. In other words if its savings are the same size as its investments. He showed that, under incomplete markets, trade imbalances emerge because of reduced savings by the. The amount of government debt held abroad is a good proxy for the global imbalances that drive us currency. 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.
That is, while away from the zlb, a reserve currency status is mostly a blessing as it buys additional purchasing power, at the zlb the reserve currency status exacerbates the domestic recession, a form of \ reserve currency paradox. Cambridge, mass national bureau of economic research, october. Ito and mccauley, currency zones rescaling global imbalances. Caballero, emmanuel farhi, and pierreolivier gourinchas nber working paper no. This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. Global imbalances and policy wars at the zero lower bound by. We characterize global imbalances at the zlb in terms of a metzler diagram in quantities. Global imbalances and currency wars at the zlb san francisco fed. Explain what drives global imbalances outside the zlb. Given the nominal rigidities, output is aggregatedemand determined as soon as the global demand for nancial assets exceeds their supply at the zlb. Gourinchas, the safe assets shortage conundrum, journal of economic perspectives 31 summer 2017. Global imbalances reducing income and therefore net global asset demand, and restoring equilibrium in global asset markets.
Bernanke says global imbalances bedevil the world economy. The first is the gdplinked bonds that would pay an interest coupon based on the issuing countries growth rate. By the same token, this indeterminacy implies that countries have an incentive to engage in trade wars. Global imbalances and currency wars at the zlb semantic scholar. Two views of the international monetary system springerlink. We use these results to shed light on the evolution of global imbalances, interest rates, and exchange rates since the beginning of the global financial crisis. Global imbalances and currency wars at the zlb, 2016 meeting papers 1418, society for economic dynamics.
John cochrane, hoover institution, stanford university 1. Global imbalances and policy wars at the zero lower bound nber. Global imbalances and currency wars at the zlb by ricardo. Global imbalances, financial crisis and economic recovery g. Paper on global imbalances and currency wars at the zlb.
In april 2020, interest rates cut to zero in us, europe and uk in response to corona recession. We thank chris ackerman, mark aguiar, manuel amador. Global imbalances and east asian countries exchange rate. Discuss informally whether there is a unique equilibrium in terms of the home and foreign output gaps. This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. 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. That exchange rates are disconnected from macroeconomics in general and current accounts in particular puzzles economists obstfeld and rogoff 2001. This paper addresses the difficult questions of transmission at the zlb, how liquidity traps spread from one country to another, the role of fiscal policy, currency wars, demand for safe assets and several other important issues.
429 1521 1264 1005 1244 1342 1535 1038 688 1203 1363 710 41 1285 1405 1475 5 1108 918 176 1181 880 823 913 283 1196 127 724 1420 522 365 341 26 1501 814 874 1162 317 506 892 1023 1081 525 497 372 186 1163 884