Central Banks as Economic Institutions

Central Banks as Economic Institutions

The Cournot Centre series

Edited by Jean-Philippe Touffut

The number of central banks in the world is approaching 180, a tenfold increase since the beginning of the twentieth century. What lies behind the spread of this economic institution? What underlying process has brought central banks to hold such a key role in economic life today? This book examines from a transatlantic perspective how the central bank has become the bank of banks. Thirteen distinguished economists and central bankers have been brought together to evaluate how central banks work, arrive at their policies, choose their instruments and gauge their success in managing economies, both in times of crisis and periods of growth.

Chapter 8: Global Imbalances: A Contemporary ‘Rashomon’ Saga

Nouriel Roubini

Subjects: economics and finance, money and banking


Nouriel Roubini INTRODUCTION The current debate on global current account imbalances is reminiscent of Akira Kurosawa’s film Rashomon. In it, a terrible crime has been committed in a forest. Each of four characters agrees that something serious has occurred, but each gives a different story or personal interpretation of what happened and why it happened and who is to blame. Similarly, the facts of the global imbalances ‘crime’ are not a matter of dispute: everyone agrees that global current account imbalances are large and growing as the United States saves less than it invests and spends more than it earns, while most of the rest of the world saves more than it invests and spends less than it earns. But the debate over the causes of this ‘crime’ and which countries are to blame is very acrimonious, especially since, rather than four characters, this contemporary saga counts at least ten (and possibly more), each with a different argument or explanation of the causes and who is responsible. To set the scene, we must first present the ten principal ‘suspects’. First interpretation: according to many, the United States is to blame for the global imbalances saga because of its twin fiscal and current account deficits. Second: Federal Reserve Chairman Ben Bernanke (2005) argues that it has little to do with US fiscal deficits (as according to him, the world is Ricardian) and is instead all about a ‘global savings glut’ triggered by emerging market economies saving too...

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