Explaining the Financial and Economic Crises
New Directions in Modern Economics series
Edited by Eckhard Hein, Daniel Detzer and Nina Dodig
Chapter 7: Global and European imbalances and the crisis: a critical review
The wave of global imbalances generated since the turn of the twenty-first century between the US economy and those of the South-East Asian emerging economies and oil-exporting countries were identified early on as a fundamental cause of the global financial crisis. The argument linking the crisis to these imbalances, in broad strokes, was that current account surpluses generated by emerging economies were placed in US financial assets. These flows, in the form of asset demand, pushed down long-term interest rates, which encouraged a credit boom that fuelled a real estate market bubble. In other words, the US financial system came under strong pressure to receive and recycle capital flows from abroad. Until the outbreak of the crisis, global imbalances were perceived, at least by some researchers, as a signal of a new global equilibrium that might persist over time. However, another group of researchers argued that these imbalances should be corrected by appropriate fiscal and monetary policies in the USA and by exchange rate adjustments in China to avoid a radical adjustment induced by a sudden stop of foreign capital flows into the US economy, an event with a high probability of dragging the global economy into crisis.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.